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TMI Blog2024 (7) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... he comparable selected by the Transfer Pricing Officer were not on the Tata Consultancy Services Ltd. basis of any detailed search process. At least, no such analysis is either forthcoming from the order of the Transfer Pricing Officer or could be brought to our notice by learned Departmental Representative. On the contrary, on a thorough and careful reading of the impugned order of learned Commissioner (Appeals), we are of the view that learned Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the assessee with foreign comparables and after detailed analysis has shortlisted the final comparables to be considered for comparability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. In view of the aforesaid, we do not find any merit in the grounds raised by the Revenue on the issues . Provision of guarantee - Performance, financial, and lease guarantees, provided by the assessee for its AEs - main contention of the assessee is that the charges should be levied only on the component of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s activity has not been properly addressed by the Departmental Authorities keeping in view the ratio laid down in the relevant case laws. It also requires deliberation whether it can be considered as an international transaction under section 92B r/w Explanation-1(c). Brand royalty fees - whether Tata Sons Pvt.Ltd. is the legal owner of the trademarks and service marks containing TATA including Tata Consultancy Services and TCS used in relation to the business of the assessee? - main contention of the assessee is that the name TATA is owned and used by Tata Sons since 1868 - HELD THAT:- As decided in A.Y. 2014-2015 [ 2023 (9) TMI 1114 - ITAT MUMBAI] held that the fee paid by the assessee towards the brand to Tata and Sons Ltd. is not capital in nature for the reason that the brand is not owned by the assessee. Accordingly there cannot be any royalty that needs to be charged on the brand since assessee is not the owner of the brand and there cannot be any TP adjustment towards the amount that ought to have been received by the assessee towards brand royalty. We therefore see no infirmity in the order of the CIT(A). This ground of the revenue is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... tions relating to provision of software and consultancy services and availing of services have been aggregated by assessee for the purpose of benchmarking as the rendering of the services in a respective territory for a third party client on the basis of contract received through Associated Enterprises is also supported by onsite service facilities which the AEs provide. The TNMM has been considered as the most appropriate method and for the purpose of bench marking the following comparables / methodology was used by the assessee:- Sr. No. Name of company Average NPI 1. Core Education & Technologies Ltd. 11.03% 2. Infosys Ltd. 36.11% 3. Larsen & Toubro Infotech Ltd. 26.64% 4. Mindtree Ltd. 21.47% 5. Persistent Systems Ltd. 34.75% 6. Tech Mahindra Ltd. 23.89% 7. Vakrangee Softwares Ltd. 20.60% 8. Wipro Ltd. 25.04% 9. Zensar Technologies Ltd. 25.58% 10. Mphasis Ltd. 27.20% 11. IBM India Pvt.Ltd. 11.01% 12. Inautix Technologies India Pvt.Ltd. 16.88% 13. Microsoft Corporation India Pvt.Ltd. 7.76% 14. Yahoo Software Development India Pvt.Ltd. 22.53% 15. HCL Infosystems Ltd. 20.09% Mean 22.04% Median 22.53% 35th Percentile 20.60% 65t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 has considered a similar quarrel and held as under:- "20. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. From the grounds raised by the Revenue, the following three issues arise for consideration - (i) what should be the appropriate PLI; (ii) whether cost of outsourcing / sub-contracting to the TCS should be considered for computing the margin; and (iii) whether the alternative benchmarking furnished by the assessee by treating the AEs as tested party with comparables in the same geographical locations is acceptable. On a careful perusal of the facts on record as well as submissions of the learned Counsel for the parties in the course of hearing as well as in the written note, we are of the view that the decision of learned Commissioner (Appeals) on the aforesaid issues are unassailable. As regards the issue of appropriate PLI, we are of the view that considering the nature of activity performed by the assessee as well as the AEs, it cannot be said that the A.Es are not bearing any risk. Rather the facts on record reveal that the AEs performed the role of risk bearing distributors. It is wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Pricing Officer, hence, comparability condition fails. It is further relevant to observe, the alternative benchmarking furnished by the assessee before the Transfer Pricing Officer by considering the AEs in different geographic locations as tested parties with the comparables selected on the basis of the respective geographic locations furnished before the Transfer Pricing Officer were not properly considered. However, in course of appeal proceedings, the learned Commissioner (Appeals) examined them in detail and after a detailed analysis approved some comparables selected by the assessee and also added some new comparables. Whereas, the comparable selected by the Transfer Pricing Officer were not on the Tata Consultancy Services Ltd. basis of any detailed search process. At least, no such analysis is either forthcoming from the order of the Transfer Pricing Officer or could be brought to our notice by learned Departmental Representative. On the contrary, on a thorough and careful reading of the impugned order of learned Commissioner (Appeals), we are of the view that learned Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as chargeable services, but the charges should be levied only on the component of services performed by the AEs. Similarly, in the case of lease guarantee, the contention of the assessee is that the charges should be levied only on the portion of leased premises occupied by the AEs and fees should not be charged on the portion of premises occupied by the assessee. 13. The contentions of the assessee have been duly considered by this Tribunal while deciding the quarrel in A.Y. 2009-2010. It would be pertinent to first refer to the findings of the CIT(A) for the impugned issue and the same reads as under:- "A. In respect of performance guarantee, the rate to be applied is 0.88 % as against 1.39% in AY 09-10. The premium has changed to USD 1.1 million and the insurance cover to 125 million in this FY. Further according to assessee as against 48% on site revenue in AY 09-10, the figure is 31.72% in this FY making necessary modification. This claim may be verified by AO/TPO and same approach in calculation by CIT(A) in AY 09-10 may be adopted. B. In respect of Finance guarantee, the rate remains unaltered at 0.77% (0.75% +mark up of 0.02%) C. In respect of Lease guarante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining services are rendered by the AE and thus, if the performance guarantee is treated a chargeable services, the charges should be levied only on the component of services performed by the AE (ii) part of the premises i.e. 40% during the year under consideration was occupied by the assessee and thus, if lease guarantee is treated as chargeable services, the charge should be levied only for the balance i.e. 60% during the year under consideration. We direct the assessee to file the relevant documents/evidence on the above contentions before the AO." 15. As mentioned elsewhere, since the lower authorities have followed the orders of earlier assessment years, respectfully following the decision of the co-ordinate Bench (supra), we direct accordingly. 16. This ground is dismissed with above directions. 17. The third issue relates to provision of inter-company loans. The underlying facts in this issue are that the assessee has given loan to its AEs in the prior year primarily for acquisition of downstream subsidiaries by the AEs. It was contended that these loans have been advanced to the AEs for the purpose of the benefit to the assessee itself and hence are quasi-equity in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 20% of the advance was for working capital. Money advanced to TCS FNS Pty. Ltd., Australia, was purely for acquisition of downstream subsidiary. Similarly, advance to TCS Asia Pacific Pty. Ltd., is for acquisition of downstream subsidiary. Only the advance made to TCS Morocco is for working capital requirement. It is further noted, major part of advances made to TCS Ibero America, TCS FNS Pty. Ltd. and TCS Morocco have been converted to equity subsequently. It is also a fact on record that before learned Commissioner (Appeals), the assessee has filed a detailed written submission on 27th March 2014, elaborately discussing the nature of advance made to the AEs and the purpose for which such advances were made. It was submitted by the assessee that the advances made to the AEs were as a part of business strategy and not simply to help the AEs with capital infusion. The assessee has advanced detailed argument stating that advances made to the AEs is a shareholder activity and not advancement of loan. In this context, the assessee has referred to OECD Transfer Pricing Guidelines as well as UK and Australian Regulations. It is evident from the impugned order of the learned Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. The main contention of the assessee is that the name TATA is owned and used by Tata Sons since 1868. Tata Consultancy Services and TCS trademark / Marks are registered in India under Trademarks Acts, 1999, owner being the Tata Sons Limited, which is evident from the certificates exhibit at pages 500-508 of the paper book. Similarly, the Tata Consultancy Services trademark / Mark is registered in overseas countries like Japan, Canada, United States, etc., the owner being the Tata Sons Limited, as per certificates exhibit in the paper book. Even in the prospectus filed with SEBI on 09.06.2004 by TCS it has been categorically mentioned that Tata Sons is the proprietor of the trademark and service mark "TATA". Even in the brand equity and business promotion agreement between TCS and Tata Sons it has been clearly provided that the right to TCS and its subsidiaries to use the TATA name and TATA marks for its internal and external business communications is given by Tata Sons. 21. Based on these undisputed facts, the first appellate authority was of the firm belief that the assessee cannot collect the brand royalty from its AEs worldwide. 22. Before us, the Counsel vehe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is not the owner of the brand and there cannot be any TP adjustment towards the amount that ought to have been received by the assessee towards brand royalty. We therefore see no infirmity in the order of the CIT(A). This ground of the revenue is dismissed." 24. Similarly, in A.Y. 2013-2014 in ITA No.1769/Mum/2018 and for A.Y. 2012- 2013 in ITA No.797/Mum/2018, this issue has been decided as under:- "9.1. We have heard rival submissions and perused the materials available on record. We find that assessee had incurred an expenditure in respect of payment towards Tata brand equity and claimed the same as „business expenditure‟ u/s37(1) of the Act. The assessee had made payment towards subscription fee for carrying out normal business activities of the company. The assessee submitted that the Tata brand always belong to Tata Sons and accordingly, the assessee has made payment to Tata Sons after due deduction of tax at source u/s.194J of the Act. The assessee also submitted that this payment is required to be made annually by all the subscribee‟s to Tata Sons towards subscription on the basis of their profitability. There is no question of capitalizing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved huge benefits in the form of increase sales and also other operational efficiencies. In the past assessment years the similar payment has been allowed as deduction. The Assessee relied on the decision in the case of Radhasoami Satsang Vs. CIT (1992)193 ITR 321(SC)". 4. The A.O. did not find merit in the above submissions made by the assessee on this issue for the following reasons given in the assessment order:- "The assessee company was incorporated on 17.10.1995 with the name Tata Autocomp Systems Ltd. Therefore, the assessee company had been using the name TATA since then. It is not a case where prior permission was required to use the "TATA" name at the time of incorporation. The aforesaid arrangement of payment of subscription towards brand equity was entered only on 04.06.2001 i.e. more than five years after the incorporation. By using TATA word in its name since then itself gives the assessee right to use TATA brand. Further, it is seen that the major holding (74%) of the assessee company is with Tata Industries Ltd. Tata Motors Ltd, and Tata Sons Ltd. All these three companies have been using the name TATA since long. As regards asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of promotional material and such other activities as in the opinion of the Board of Directors of the Proprietor Company, will enhance the TATA Brand Equity and correspondingly benefit the business of the Subscriber. c) To co-ordinate major campaigns involving the promotion and development of the Business Name Marks and Marketing Indica. d) to engage the services of specialist agencies both National and International as the need may be to energise and enhance the Overall TATA Brand Equity which eventually could result in a greater market share for the products and services of the Subscriber and help in the preservation and vindication of the trust and confidence reposed by customers, business associates, stockholders and the society in general. e) To engage profession consultants for conducting industry/organizational studies/research for the formulation of Group business strategies and policies that would assist the subscribing companies to emerge as business leaders in the evolving markets. f) For the attainment of the overall objectives of the TATA Brand Equity & Business Promotion Scheme and interacting closely with the participating TATA Companies in a certainly coo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as offices of the Proprietor and the Group Companies. p) To institutionalise mechanisms to share and propagate best management practices amongst the Subscribing companies. q) To manage and supervise the implementation of the Scheme and ensure compliance with the terms of this Agreement and the Code". The ld. counsel for the assessee has also invited our attention to the relevant portion of the agreement dtd 4th June, 2001 at page 218 containing subscription clause whereby the assessee was obliged to pay the subscription at the stipulated rate to Tata Sons Ltd. for the services rendered in connection with maintaining and promoting the entire brand and image of TATA group. 6. As further submitted by the ld. counsel for the assessee, M/s Rallis India Ltd., another company belonging to TATA group had also entered into a similar agreement with M/s Tata Sons and the subscription paid as per the said agreement towards TATA brand equity and business promotion scheme was disallowed by the A.O. The ld. CIT(A), however, allowed the same and the Tribunal vide its order dtd. 30-8-2011 passed in ITA No. 5701/Mum/2008 for ITA No.1769/Mum/2018 and other appeals M/s. Tata Consultancy Services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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