Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 28 - AT - Income TaxArm’s length price adjustment in respect of investment advisory fees charged by the assessee from its associated enterprises - selection of MAM - Held that:- The exercise of ascertaining the arm’s length price, simplictor on the basis of the fees in percentage terms with non AEs and without having regard to the other factors governing determination of price, is inappropriate and unsustainable in law. It is also important to bear in mind the fact though rule 10B refers to the expression ‘price’, rather than the expression ‘amount’, the connotations of ‘price’ cannot extend to a formula on the basis of which the amount is to be quantified, in all situations- particularly when the formula on the basis of which amount is determined does not have a direct nexus with the product or service involved. What has been adopted as internal CUP, i.e. fees in percentage terms at the level of US $ 0.39 million fund and US $ 2.55 million fund, is inherently incomparable with the fees, in percentage terms at the level of US $ 135.83 million fund and US $ 37.75 million fund. We, therefore, reject the adoption of this internal CUP. We have noted that the DRP has justified rejection of TNMM on the ground that the normal trade practice is to invoice the investment advisory services, in intra AE transactions, on cost plus basis. It is difficult to understand the rationale of this approach. What is done by other entities in similar situations is hardly relevant as long as no defects are pointed out in the applicability of the TNMM on the facts of this case. The internal CUP, as used in this case, has been found to be inappropriate and unacceptable. There is nothing else to show the suitability of any other method on the facts of this case, and, if at all there is a residuary method, or what is termed as the method of last resort, it is transactional net margin method. TNMM has almost become the 'default' method for taxpayers in recent years. In view of these discussions, in our considered view, the TNMM method, as adopted by the assessee, should have been accepted. We have also noted that the assessee has produced segmental accounts for the investment advisory services in this case. As regards the point that only salary costs are taken into account in the segmental accounts and other costs are not taken into account and other issues with respect to correct working of the TNMM, with the consent of the parties, we remit the matter to the file of the TPO for adjudication de novo on the correctness of the segmental accounts, in accordance with the law, by way of a speaking order and after giving yet another opportunity of hearing to the assessee.
|