Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

DQ Entertainment (International) Ltd. Versus Asst. Commissioner of Income-tax, Circle – 17 (1) , Hyderabad.

2016 (8) TMI 727 - ITAT HYDERABAD

Transfer pricing - Valuation of an intangible asset - revenues generated out of the Intellectual Property (“IP”) or not. - Held that:- What is important is the value available at the time of making business decision. It should be left to the wisdom of the businessman, he knows what is good for the organization. No doubt, ‘IP” was sold to “AE”. The method adopted should be consistent and should be documented to review in the future. The review does not mean replacing the projection with actuals. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

th this are that the revenue adopted the actuals of AE without considering whether they are revenues generated out of the “IP” or not. They simply adopted the revenues of AE without giving proper findings that the revenues of AE are all generated only out of this “IP” (Jungle Book). The assessee submitted that these revenues are generated by “AE” out of other properties(IPs) as well. We are of the view that the revenue cannot adopt such values without proper verification. In our considered view, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- Held that:- After the completion of the sale process, the “AE” has done transaction with the outsiders or outside the jurisdiction of the Indian territorybut there is no transaction done with the assessee involving the above IP (jungle book) to consider that there exists a international transaction. Once, the IP is sold and Arm’s length price is determined, the “IP” becomes the property of “AE”. The assessee has no locus standi to claim any benefit neither the revenue. - The revenue has gr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rdingly, the grounds raised by assessee are allowed. - Payment towards management consultancy service fee - Held that:- After analyzing the case laws and assessee’s own case in the earlier year, the coordinate bench of this Tribunal has adjudicated that management consultancy charges have to be allowed as per the MoU and OECD guidelines. Respectfully following the earlier decision, we are inclined to allow the grounds raised by the assessee. - Mark up on travel and other expenses reimbur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ement from “AE”. Since there is no element of service by the assessee, adding markup on these kind of transactions are not justified. As held in the case of M/s Cognizant Technologies Solution (spra), the additions made were deleted by Chennai Bench of ITAT. Accordingly, the grounds raised by the assessee are allowed. - Adjustment in respect of bonus shares issued by the appellant to its AE - Held that:- The TPO made a general observation in his report on the issue of bonus shares but the TP .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion 144C of the Income-tax Act in pursuance to the directions of the Dispute Resolution Panel (DRP in short), Hyderabad pertaining to the assessment year 2010-11. 2. Briefly the facts of the case are that the assessee, DQ Entertainment (International) Ltd. is one of the leading producers of animation visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company has produced/co-produced and distributed cartoon TV series, direct- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

information were issued. Profile of the AE: 2.1 The company, DQE Plc., Isle of Mann, is the holding company of DQE (Mauritius) Ltd., Mauritius. The DQE (Mauritius) Ltd. is the holding company of DQE (International) Ltd., (assessee). The DQE (International) Ltd., is the holding company of DQE (Ireland) Ltd. 2.2 As per the audited statement of accounts, the financials of the assessee are as under: Description Amount (In Rs.) Operating Revenue 1,48,52,58,323 Operating Cost 1,17,85,17,865 Operating .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bad-I. The Transfer Pricing Officer passed an order u/s, 92CA(3) of IT Act, 1961 on 27.01.2014. The TPO in his order has recommended following adjustments u/s.92CA of the Act. S.No. International transaction Adjustment 1 Sale of intangible asset 6,98,98,271 2 Profit Attributable 6,74,17,416 3 Payment of management charges 3,70,53,448 4 Reimbursement of expenses received 7,73,699 Total adjustment 17,51,42,834 2.5 In accordance with the order of the TPO dated 27.01.2014, the adjustments of ₹ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n law in arriving at the price of ₹ 12,35,18,271/- towards sale of intangible asset as against the price of ₹ 5,36,20,000/- determined by the appellant thereby making an adjustment of ₹ 6,98,98,271/-. 3. The Ld DRP/AO ought to have accepted the fact that the sale of intangible asset of ₹ 5,36,20,000/- arrived at by the appellant was at arms length when the same had been valued by 2 independent valuers. 4. The ld DRP/AO ought not to have substituted the projections made as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

udice to ground Nos. the Ld. DRP/AO are erroneous in allocating 80 percent of the total profits of DQ Ireland to DQ India, when the profits of DQ Ireland include revenue generated from several intangible assets while the appellant has sold only one Intangible asset i.e., Jungle Book. 7. Without prejudice to ground no.5 the Ld. DRP/AO is erroneous in allocating 80% of profit on sale of IP to DQ India when the tax on sale of such capital asset was already paid in India by DQ India. 8. The Ld. DRP/ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eceived of ₹ 77,36,985/- which was arrived at by applying the mark up @ 10 percent. The Ld DRP/AO ought to have appreciated the fact that expense incurred on behalf of DQ Entertainment Ireland our Associated Enterprise towards expenses were purely at cost and is not a service. 10. The Ld DRP erred in not adjudicating the ground of objection which is as under: "The Ld AO/TPO is legally and factually incorrect in making an adjustment of ₹ 751,83,46,202/- in respect of bonus shares .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sue of bonus shares by the assessee was at arm's length and cannot legally be treated as dividend or otherwise. 5. As regards ground Nos. 2 to 4, it is observed that during the year, DQE India sold the Intellectual Property ( IP ) rights of the Jungle Book Animation series to DQE Ireland, for an amount of ₹ 5,36,20,000/- which was based on average of the value's arrived at by 2 independent valuers. The detailed valuation conducted by independent valuer, Grant Thornton using Relief .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e year 2009-10 and 2010-11 and arrived at value of ₹ 12,35,18,271/- as compared to ₹ 5,36,20,000 as determined by the assessee and proposed the ALP adjustment to the AO. AO had accepted the ALP adjustment and added the same to the total income of the assessee. 6. Before the DRP, the assessee submitted that the valuation by applying DCF method or any other method is always applied by considering projections of revenues (Which were based on the detailed market expectation on that parti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nverse if actuals are lower, the valuation will go down. According to assessee, this sort of valuation of substituting actual values against projected values is nowhere accepted in the world. Assessee submitted that it is well aware about the huge fluctuation in the global market place. The projection is based on the assumptions based on normal market scenario and it is based on which any valuation exercise is completed and accepted world-Wide. The situation would have had been same even if the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he assessee's valuation has to be accepted as it was supported by an independent valuer. 7. After considering the submissions of the assessee and the order of TPO, the DRP held that there is no merit in the submissions of the assessee and there is no infirmity in the action of the TPO in determining the Arm s length price. DRP accordingly rejected the objection raised by the assessee on this issue. 8. Ld. AR submitted before us that during the year, DQE India sold the Intellectual Property ( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

207 to 235 of the paper book and the valuation carried out by independent valuer Grant Thornton using Relief from Royalty Method is given in pg.236 to 253 of paper book. It is submitted that the consideration for purchase of Jungle Book Animation was arrived at the average values determined by independent valuer 536.20 Lakhs ((510+562.3)/2) 8.1. The Ld. AR submitted that the TPO has replaced the projected cash flows with the actual total revenues of DQE Ireland for the year 2009-10 and 2010-11 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt company made an outright sale to DQE Ireland. The cost incurred on Jungle Book by the appellant company is ₹ 4,94,03,810 (Breakup at pg. 362 of Paper Book) and the appellant company has sold the said Intangible asset for ₹ 5,36,20,000 based on valuation by 2 Independent valuers. The balance amount of ₹ 42,16,190/- was offered as short term capital gains. Further the Ld. TPO/AO erred in allocating 80% of capital gains to DQ India when tax on sale of such capital asset was alr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

com 19 (Bang.) wherein the Hon'ble Bangalore Tribunal held as under: The excess earning method is the method that is adopted by the TPO. We see no infirmity in adoption of this method for the simple reason that the relevant data is available with reasonable accuracy, closing in on real valuation of a software product. This valuation is upheld by the US courts while arriving at the sale value of a software product. Further, the valuation under the method mainly revolves around discounted cash .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, 2006 itself and also under EEM future revenues will be projected based on the previous year data keeping the current year's data as the base which has got no relevance on the actual revenues during the future years. We also make it clear that the actual CAGR shall be adopted by the TPO without any discount. 8.5 Finally ld. AR submitted that TPO's contentions of replacing the projections with actuals are legally unsustainable and technically incorrect. 9. Ld. DR submitted that the TPO w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the revenues projected as he found from the valuation report that the projections have been provided by the management themselves. The TPO obtained that financial statement of DQ Ireland and replaced projected figures in valuation report by Grant Thornton and retained all other values and margins provided by the valuer. The result of such exercise resulted in the value of IP of Jungle Book at a relatively higher amount. The TPO could not arrive at the figures of "Value till patent IP expiry .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t at arm's length. The TPO is well within his powers as provided in para 9.87 & 9.88 of QECD Transfer Pricing Guidelines and substituted his own prices for the actual transaction undertaken as the difference in valuation was substantial. 10. Considered the submissions of both the parties and perused the material facts on record as well as the orders of revenue authorities. The assessee had sold IP to its AE after considering the independent valuation from two valuers and arrived at the s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on as held in Social Media India Ltd. Vs. ACIT (ITA No. 1711/Hyd/2012). The coordinate bench of this Tribunal held that the assessee s valuation has to be accepted as it was supported by an independent valuer. We are in agreement with the above decision. But now the question before us is, whether the actual result can be adopted in the valuation of IP . The ld. AR has also brought to our knowledge the decision of ITAT, Bangalore in the case of Tally Solutions (P) Ltd. Vs. DCIT (supra). In the ab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y consistency. What is important is the value available at the time of making business decision. It should be left to the wisdom of the businessman, he knows what is good for the organization. No doubt, IP was sold to AE . The method adopted should be consistent and should be documented to review in the future. The review does not mean replacing the projection with actuals. It is the rational of adopting the values for making decision at the point of time of making decision. When the values are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

P or not. They simply adopted the revenues of AE without giving proper findings that the revenues of AE are all generated only out of this IP (Jungle Book). The assessee submitted that these revenues are generated by AE out of other properties(IPs) as well. We are of the view that the revenue cannot adopt such values without proper verification. In our considered view, for valuation of an intangible asset, only the future projections alone can be adopted and such valuation cannot be reviewed wit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ook on Transfer Pricing Risk Assessment in Chapter 3 on Assessing When Transfer Pricing Risk Exists And When it Does Not in para 3.2.1.7 under Transfer or Use of intangibles to/for Related parties stated that an intangible may be of great significance because the economic return on the intangible can be substantial. When incomeproducing intangibles are transferred, determining their arm's length value Is crucial. There are various reports which suggest that importance of IPRs (including trad .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ership or bearing of costs alone is not sufficient to be entitled to all the returns related to the intangibles. The OECD TPG has also provided guidelines on recognition of actual transactions undertaken in para 1.64 to 1.68. The guidelines provide that there are two particular circumstances in which it may, exceptionally, be appropriate and legitimate for a tax administration to consider disregarding the structure adopted by a taxpayer in entering into a controlled transaction. The first circum .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ehaving in a commercially rationale manner and the actual structure practically impedes the tax administration from determining an appropriate transfer price. In both sets of circumstances described above the character of the transaction may derive from the relationship between the parties rather than be determined by normal commercial conditions and may have been structured by the tax payer to avoid or minimize tax. Legal registrations and contractual arrangements tend to be the starting point .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

related to the development, enhancement, "'maintenance and protection of intangibles'. Of the multinationals surveyed, over half indicated that such intangibles have been recognized in the books and records where development cost is borne which suggest that the location of the people performing the key .functions (development, enhancement, maintenance and protection) have not been used to determine where to allocate the intangible related returns. The UN TP Manual also recommends es .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at lacks commercial substance. The legislation that has been formulated to disregard these transactions is collectively referred to as General Anti- Avoidance Rules (GAAR). Some countries, including UK and USA, have vigorous judicial anti-avoidance doctrines and no statuary GAAR, while other countries, such as Australia, Canada, Germany, Spain, New Zealand etc. have enacted statuary GAAR. Although India does not have wide ranging anti-avoidance rules under the domestic law, the principle of ' .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof: Neither the nomenclature of the documents nor any particular activity undertaken by the parties to the contract would be decisive. " In the case of Nilkantha Narayan Singh v. CIT 20 ITR 8 at page 14), the Court held that if the terms used in the agreements are not conclusive and one has to look at the substance rather than the form. In addition, it is equally well settled that a name .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

atus of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent" In the case of Moped India Ltd. V Assistant Collector Central Excise 1985 - TMI - 41634 - (SC) the Hon'ble Supreme Court held that whil .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Institute of Chartered Accountants of India and Central Government, wherein it is mentioned that the primary consideration in presentation of financial statements and selection of accounting policies by a business enterprise is that it should represent a true and fair view of the state of affairs and profit and loss account of the enterprise. The major considerations governing the selection and application are prudence, substance over form and materiality. Accordingly, the accounting treatm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

form. Thus, the essence of the contract is crucial and is to be seen, keeping in mind the intention of the parties. In Sundaram Finance Ltd. v State of Kerala AIR 1966 SC 1178 the Supreme Court has held that true effect of transaction must be determined from the terms of the agreement considered in the light of surrounding circumstance. In each case, the court can, unless prohibited by statute, go behind the documents and determine the nature of transaction whatever may be form of documents. To .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pplied aeronautical engines and spare parts to certain defense establishments in India. It had a wholly owned subsidiary in India, Rolls Royce India Ltd (RRIL). In this case, the Delhi ITAT found that the premises in the name of RRIL were being occupied by RRP's employees while visiting India frequently for the purposes of its business operations in India. RRP reimbursed RRIL the expenses for the operation and maintenance of the office in India and also compensated RRIL for the support servi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e expression "international transaction" shall include - (a) . (b) . (e) . (d) . (e) a transaction of business restructuring or reorganization, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date." The OECD in its Draft Handbook on Transfer Pricing Risk Assessment in Chapter 3 on Assessing When Transfer Pricing Risk .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n these transactions involve efforts to move valuable assets into more tax favoured environments. Risk assessment should seek to identify such transactions and evaluate the potential exposures. OECD TPG in Chapter 9 has dealt with the issue of business restructuring. Business restructuring is defined as cross border redeployment by a MNE of functions, assets and / or risks and may involve cross border transfer of valuable intangibles. Business restructuring typically accompanied by reallocation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at are not always readily identifiable. It is by no means exhaustive and it is acknowledged that additional classes and categories of risk may exist: Category 1: Intentional profit shifting through new structures; Category 2: Intentional profit shifting through restructuring; Category 3: Intentional profit shifting through incorrect functional classification, the use of incorrect methods, allocation keys, etc; Category 4: Thin capitalization; and Category 5: Unintentional profit shifting. Re-cha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

first circumstance arises where the economic substance of a transaction differs from its form. In such a case the tax administration may disregard the parties characterization of the transaction and re-characterize it in accordance with its substance." "The second circumstance arises where while the form and substance of the transaction are the same, the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by indep .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the totality of its terms would be the result of a condition that would not have been made if the parties had been engaged in arm's length transactions. Article 9 would thus allow an adjustment of conditions to reflect those which the parties would have attained had the transaction been structured in accordance with the economic and commercial reality of parties transacting at arm's length." Further in para 1.67 commenting that AEs may and frequently do conclude arrangements of a sp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

policy perspective". The OECD draft guidance is expected to be finalized in 2014. The OECD's work on intangibles is a specific action area listed in the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan and is closely related to other action areas on transfer pricing, including work on allocation of risks and capital for transfer pricing purposes, work on re-characterization of transactions that might not occur between unrelated parties, and work on transfer pricing methods .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arified, and is a fairly comprehensive definition, not limited by requirements of legal registration or protection. 2. The concept of entitlement to intangible related returns is the guiding principle that determines which entity should receive the compensation arising from the intangible. Legal ownership and funding the development of the asset are now only a 'starting point'. The performance of key functions with respect to the development,. enhancement, maintenance and protection of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ness as usual. The OECD in its publication addressing "Base Erosion & Profit Shifting" in Chapter 1 on introduction observed that there is a growing perception that Government's use substantial corporate tax revenue because of planning aimed at shifting profits in ways that erode the taxable base to locations where they are subject to more favourable tax treatment. Business leaders often argued that they have a responsibility towards their shareholders to legally reduce the tax .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t a share of an enterprise's profits can be considered to originate from a country and that the country should be allowed to tax it. In the same chapter the report states that one of the underline assumptions of the arm's length principle is that the more extensive the functions/assets/ risks of one party to the transaction, the greater its expected remuneration will be and vice-versa. This therefore, creates an incentive to shift functions/assets/ risks to where there returns are taxed .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s the ability of corporates to misapply income allocation rules by separating income from economic activities that produce income and shift the same to low tax jurisdictions. In this regard, the Report states: This most often results from transfers of intangibles and other mobile assets for less than full value, the over-capitalization of lowly taxed group companies and from contractual allocations of risk to low-tax environments in transactions that would be unlikely to occur between unrelated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

actual agreements to the extent there is inconsistency between the two (refer para 1.48 to 1.49 of OECD Transfer Pricing Guidelines, 2010). Action Point 8 - 'Intangibles' Develop rules to prevent HEPS by moving intangibles among group members. This will involve: (i) adopting a broad and clearly delineated definition of intangibles; (ii) ensuring that profits associated with the transfer and use of intangibles are appropriately allocated in accordance with (rather than divorced from) valu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has contractually assumed risks or has provided capital. The rules to be developed will also require alignment of returns with value creation. This work will be co-ordinated with the work on interest expense deductions and other financial payments: Action Point 10 - Other high risk transactions Develop rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties. This will involve adopting transfer pricing rules or special measures to: .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e IP and also taking guidance from para 9.190 of the OECD TPG, under the example "Example (B): Transfer of valuable intangibles to a shell company", it was felt that the taxpayer also needs to get its rightful share in the profit. This will be clear after the following discussion. As per the TP document, the taxpayer did not carry out any FAR analysis for the transaction relating to the sale of IP. However from the subsequent information gathered during the course of hearing it is seen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt including all production activities for animation and live action for TV series, home video and various other media. As regards the purpose of establishment, it is stated - "One of the key business strategies of DQE India is to strengthen the IP content creation and global lP portfolio. However, the talent for creation of global IPs in India is still nascent when compared to the European and other Western markets. Accordingly, DQE Ireland being located in Europe, enables to expand the DQ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ss Europe & US for script writing, music. mixing & composing, development & design, voice, music etc., on freelance basis. Most of these artists have had many years of experience working with the biggest animation studios as a result of which they understand what the audience expects from the cartoons. DQE Ireland produces content predominantly for Europe & North America and hence hiring international artists becomes necessary to cater to global audiences needs as also as per the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ture of episodes, development of characters, understanding the current market for animation, quick turn around on an episode to episode basis and development of stories from a logline to beat outline to the final script. Alongwith this write-up, the taxpayer provided the profiles of few artists such as Jimmy Hibbert, Chris Trengrove and James Mason. However, the facts of the case as understood by the TPO appear different. As per the financial statement of DQE Ireland, in the notes to the account .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

outsiders as there are no employees other than directors. Distribution cost is marketing expenses of 42,172 Euro, which constitutes 1% of the revenue. Administrative expenses include Professional charges paid to outsiders of 8,000 Euros, Directors fees of 5,398 Euros, travelling expenses 5,000 Euros, legal and professional 446 Euros, audit 20,000 Euros and bank charges 1,235 Euros. All the administrative expenses put together at Euros 40,079 constitutes another 1% of the revenue. A further finan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

work such as hiring of persons, execution of contracts, payments, receipt of services are being done online and which is more so prevalent in the developed countries such as Europe. As per the profile of the taxpayer contained in the TP document, the DQE Group is a leading animation production company engaged in the production of 20, 3D and flash animation, with a substantial workforce and a global client base. The Group currently produces animation for films, television series and console based .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

equently changed to the current name DO Entertainment (International) Private Limited on 17th January 2008 by a fresh certificate of incorporation issued by Registrar of Companies, Andhra Pradesh, India. DOE India is a subsidiary of DOE Mauritius. The annual report is flush with the achievements of the company and the details of vast library of IPs. The annual report starts with the note on 'Celebrating a decade of excellence' and goes on to list the achievement and awards won over a per .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

th the best in India, Europe, North America, Australia and New Zealand, Asia, the Middle East and Africa as well as CIS countries. Licensing of Jungle Book TV rights in over 160 countries is fine proof of DOE's global sales, distribution and licensing reach. The Company has a strong presence for high quality development in the US, the UK, France, the Philippines with a large work force of over 3000+ in India alone. I believe that one of the most important differentiators of the Company has b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al TV series, feature films, DTH videos including online, mobile and next generation console game art and in-game animation. The company was able to place IPs like Twisted Whiskers, Sandra and Rat Man with Disney, Casper with Nickelodeon and Balkend & Ravan with Turner Group among others. Thus the company is a multi faceted company with a very large trained and skilled work force capable of taking of any challenge. The taxpayer, however, is trying to project DQE India as incapable as compare .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

venue of DQE Ireland has increased from Euros 4 million to Euros 7.8 million within a span of 1 year of acquiring the IP. It is possible that the taxpayer has purposefully shifted the revenue earning potential IP to a low tax regime jurisdiction where within a year of its incorporation, it has earned substantial revenue, which has further increased substantial, 10 the subsequent years. The tax rate for corporate is 12.50% in Ireland as against the tax rate in India at 33.99%. Apparently the comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the taxpayer has earned a meager profit of ₹ 42,17,810/- on the sale of IP, it was, therefore, proposed to apply Profit Split Method (PSM) to bring the appropriate profit earned from the use of IP to India. A show cause notice was issued to the taxpayer on 09.01.2014 and the compliance was requested by 20.01.2014. The taxpayer sought a short adjournment upto 24.01.2014 which was granted. The PSM may be applicable when the various entities, involved in controlled transactions in which t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d by more than one enterprise for e.g. in case of financial service sector. where the activities performed by Indian company and foreign AEs in relation of a merger and acquisition transaction are so interrelated that it may not possible to segregate them: (b) transfer of unique intangibles. for e.g. two associated enterprises contribute their respective intangibles to develop a new product or process and earn income from such product or process. " The case of the taxpayer falls in category .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llocate the profits between the associated enterprises: contribution analysis and residual analysis. 6.3.14.2. Under the contribution analysis the combined profits from the controlled transactions are allocated between the associated enterprises on the basis of the relative value of functions performed by those associated enterprises engaged in the controlled transactions, External market data that reflect how independent enterprises allocate the profits in similar circumstances should complemen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ual analysis the combined profits from the controlled transactions are allocated between the associated enterprises based on a two-step approach: Step 1: allocation of sufficient profit to each enterprise to provide basic arm's length compensation for routine contributions. This basic compensation does not include a return for possible valuable intangible assets owned by the associated enterprises. The basic compensation is determined based on the returns earned by comparable independent ent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gible property. 6.3.14.5. The residual analysis is typically applied to cases where both sides of the controlled transaction contribute valuable intangible property to the transaction. For example Company X manufactures components using valuable intangible property and sells these components to a related Company Y which uses the components and also uses valuable intangible property to manufacture final products and sells them to customers. The first step of a residual analysis would allocate 0 b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

his respect. Step 2 may not, and typically does not, depend on the use of comparables." In response to the show cause notice the taxpayer filed its reply on 24.01.2014. It is stated that "PSM is applicable only when the intangibles is jointly owned by both Associated Enterprises under cost contribution arrangement whereas in our case it is the absolute sale from DO India to DO Ireland which is supported by independent valuation reports. Hence application of PSM for revenues generated b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

x jurisdiction and being run by only 2 persons, therefore the economic benefits do not lie there. The AE in turn is also offloading production work to the taxpayer for ±= development of the IP. The profits arising by exploiting the intangibles rightly lie with DQE India. Para of the OECD TPG succulently answers the question. "9.67 In the context of business restructurings, profit potential should not be interpreted as simply the profits/losses that would occur if the pre-restructurin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

independent enterprise would allow its valuable IP to be sold at a low value which has the potential of earning huge revenues unless it is a distress sale Having said so, no independent enterprise would allow its rightful share of profit to be retained by another enterprise. Accordingly the computation is as under- Particulars DQE India DQE Ireland Total (Euro) Total (INR @ ₹ 70 per Euro) Operating Cost 0 Marketing Expenses-42,172 Admn. Expenses - 40,079 Total - 128,950 128,950 90,26,500 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ded by leading persons in Animation Industry having as many as 8 directors with a trained and skilled combined work force of 3000+, as compared to DQE Ireland which has no other set up other than the presence of 2 directors. DQE India is in existence for more than 10 years with tie ups with various studios over the world, whereas DQE Ireland which is only 1 year old can only get so much of business only with the association with DQE India. The taxpayer has the presence and a brand value of itsel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

8377; 6,74,17,416/- and the profit attributable to DQE Ireland is ₹ 1,68,54,340/-. Accordingly the income of the taxpayer shall be enhanced by ₹ 6,74,17,416 u/s 92CA(3) of the IT Act. Based on the above, the TPO decided that even though the legal ownership IPs of Jungle Book sold, has been transferred to DQ Ireland, but the economic ownership lies with DQ India. The TPO, therefore, proceeded to apply Profit Split Method to apportion the appropriate profit to DQ India which otherwise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Intangible asset "Jungle Book" was sold to DQ Ireland on 30th September, 2009.(Pg.264 of the paper book). He submitted that the Ld TPO allocated 80% of profit on IP contribution to the appellant company and adopted the Profit Split Method (PSM) for this purpose. It is submitted that PSM is applicable only when the intangibles are jointly owned by both the assessee and AE under cost contribution arrangement and whereas in our case it is an absolute sale on so" September, 2009 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ber, 2009 and no revenue is generated between April 2009 to September 2009 either in the hands of DQ India or in the hands of DQ Ireland, hence apportioning revenue to DQ India is factually incorrect and legally unsustainable. It is submitted that the revenue from the IP Jungle Book was started generating from last quarter of FY 2009-10, i.e. during January 2010 to March 2010 when the ownership of the intangible asset was with DQ Ireland and therefore revenue generated from the intangible asset .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(II) 12,895 Euros P.B.T. after deduction of routine expenses (A) = (I-II) 11,43,628 Amount in INR (A*70) (1 Euro = ₹ 70 approximately) E(B) 8,00,53,960 Profit on Intellectual property (Capital Gains) Sale of Intellectual property 5,36,20,000 Less: Cost of intellectual property (pg. 77 & 362 of paper book) 4,94,03,810 Capital Gains (pg. 6 of paper book) (C) 42,16,190 Profit on mutual funds (pg. 6 of paper book) It is only ₹ 1090 (D) 1,620 (E = C+D) 42,17,810 F = (B+E) 8,42,71,770 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rom various projects like Jungle Book, Maryoku Yummy & Peterpan (Pg. 265 & 286 of paper book). Since the projects Maryoku Yummy and peterpan are no way related to DQ India and further revenue from project Jungle Book started only from January 2010 when DQ Ireland was absolute owner there arises no question of any profits belonging to DQ India. 13.4 Ld. AR, therefore, submitted that it is not legally & factually tenable to attribute 80% of profits of DQ (Ireland) to DQ (India) when su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

In this regard, the TPO observed that the sale of the intangible asset to AE is in the nature of business restructuring. Under this particular restructuring there is a transfer of asset including intangible. Often these transactions involved efforts to move valuable assets into the tax favoured nation like Ireland and therefore, there was incentive to transfer the intangible asset in the development stage itself. The TPO also highlighted the issue of BEPS examining the substance, substance over .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d at Euro 812,182 were purchased by the company from DQE India on 16-04-2009. The cost of sales of Euro 2,798,190 is paid to outsiders as there are no employees other than directors. Distribution cost is marketing expenses of 42,172 Euro, which constitutes 1% of the revenue. Administrative expenses include Professional charges paid to outsiders of 8,000 Euros, Directors fees of 5,398 Euros, travelling expenses 5,000 Euros, legal and professional 446 Euros, audit 20,000 Euros and bank charges 1,2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er than Ireland. In this digital age there is also no need for a person to be stationed at a place to work but almost all the work such as hiring of persons, execution of contracts, payments, receipt of services are being done online and which is more so prevalent in the developed countries such as Europe. 14.1 Ld. DR submitted that as per the profile of the taxpayer contained in the TP document, the DQE Group is a leading animation production company engaged in the production of 2D, 3D and flas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

India") was formerly known as Animations and Multimedia Private Limited ("AMPL"). AMPL was incorporated on 13th April 2007 and the name was subsequently changed to the current name DQ Entertainment (International) Private Limited on 17th January 2008 by a fresh certificate of incorporation issued by Registrar of Companies, Andhra Pradesh, India. DQE India is a subsidiary of DQE Mauritius. 14.2 Ld. DR submitted that the TPO further observed that it is therefore, improbable to imagi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

substantially in the subsequent years. The tax rate for corporate is 12.50% in Ireland as against the tax rate in India at 33.99%. Apparently the company is a shell company. It is also noticed that in the following years a few more IPRs have been shifted to Ireland AE, but the production work is again assigned back to the taxpayer. Thus both the AE and the taxpayer are involved at some stages in the exploitation of the IP even after the legal ownership of the IP is transferred. The TPO therefore .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

year old can only get so much of business only with the association with DQE India. The taxpayer has the presence and a brand value of itself which has been capitalized by the AE to tap the right contacts in the industry. The hired staff in Ireland, if they are renowned, would like to associate with some established entity rather than a start-up company. Therefore it is only due to the identity and standing of DQE India in Global arena, the persons got hired. In this scenario it is only appropri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

adopted the whole revenue generated by AE in the whole year to arrive the profit arithmetically to the Indian Entity. The main issue before us is, whether the TPO justified to determine the profit attributable to Indian entity (assessee) when he himself determined the sale consideration of IP (Jungle Book). When the TPO agreed that there is a outright sale, there ends the international transaction. Now, TPO is trying to go beyond sales and making TP adjustments. We are asking ourselves, whether .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction done with the assessee involving the above IP (jungle book) to consider that there exists a international transaction. Once, the IP is sold and Arm s length price is determined, the IP becomes the property of AE . The assessee has no locus standi to claim any benefit neither the revenue. 15.2 The revenue has grievances on the arrangement and existences of group companies. There is no doubt, there exists tax planning. There can be tax planning within the four corners of the taxation laws. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the assessee has paid management consultancy charges of ₹ 3,70,53,448/- to its AE, DQ Mauritius for availing management consultancy services. In view of the assessee's failure to substantiate with supporting evidences showing the tangible benefit has been received, the TPO computed the Arm's Length Price at NIL. Following the decision of the earlier DRP for the preceding assessment years and ground of objections raised by the assessee were rejected by the TPO. 17. DQE India a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

towards management consultancy services received. The assessee company submitted to the TPO that the payment of management fee was made to the Board of Directors of the associated Enterprise (DQ Plc) as they were rendering invaluable advice and guidance to the assessee company. These Board of Directors included persons from the animation field, and having experience in children's entertainment and who had been rendering invaluable inputs to the assessee company. The assessee also submitted .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gic & management support of DQ Plc were able to complete public issue in Indio in FY 2009-10 and listing with BSE, NSE where the issue was oversubscribed 86 times. Their experience and critical actions have enabled DQ India to exploit business opportunities which enabled growth in the company. All such guidance and advice was being rendered by the Board of Directors and hence the payment of management consultancy fees was made. 18. The Learned TPO has observed that the tax payer failed to fu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nagement and supporting services to DQE India. Their costs will be allocated across DQE Mauritius and DQE India based on shares of agreed budgeted sales. DQE Mauritius will pass through at cost any major items of third party expenses to which it has not added value. All costs will be marked up with a profit element of 5%. Thus, detailed budgeting and documentation needs to be maintained for the services being rendered by the AE. These records, if produced before the TPO would throw more clarity .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vailed management consultancy services from DQE Mauritius, as per the terms and conditions in a Memorandum of Understanding ("MoU") entered into between both the companies. The services provided by DQE Mauritius to DQE India as per this arrangement from time to time, are in the nature of administrative, general management and professional services. 20.1 Ld. AR submitted that during the assessment year 2010-11 the assessee paid an amount of ₹ 3,70,53,448/- to M/s DQ Entertainment .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.2 Ld. AR submitted that Board of DQ Plc has been instrumental in bringing in a number of projects with important customers. These projects are valued at approx. ₹ 198 crores which have been executed by DQ India over the period 2009-10 to 2012-13. Board of DQ Plc's strategic decisions have helped the assessee in getting majority revenue of ₹ 124 Crores from Method Animation, France. Further the business of DQ India is growing with the support of BOD of DQ Plc. It is also submitte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted that despite the submissions made, the Learned TPO has observed that the tax payer failed to furnish any evidence in support of receipt of the tangible benefits for which the payment was made to its AE and hence treated the arms length price as NIL. 20.4 Ld. AR submitted that the assessee has provided the detailed breakup of expenditure along with the invoices by DQ Mauritius for the AY 2010-11 as asked for by the TPO (Pg.202 to 206 of Paper Book) The Breakup of Management Consultancy Fees i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the revenue. Expenditure can never be linked to the income earnings ability or the value addition the expenditure has bought into the business as the same cannot be quantified. Hence, the legitimacy of expenditure cannot be questioned. For this proposition he relied on the following decisions: 1. Dresser-Rand India (P) Ltd. Vs. Addl.CIT (2011) 47 SOT 423 (Mum). 2. Ericsson India Pvt. Ltd. vs. DCIT (TS-319-ITAT-2012-(Del) 3. CIT Vs. EKL Appliances (ITA Nos 1068/2011 & 1070/2011) 20.7 Ld. AR s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ubmitted that the TPO cannot determine the ALP of a transaction at Rs. NIL. In this connection, ld. AR relied on the following case laws: 1. Social Media India Ltd vs ACIT ITA No.1711/Hyd/2012 2. Thyssen Krupp Industries India (P) Ltd Vs. ACIT Mumbai (2012) 27 taxmann.com 334 (Mum) 3. Castrollndia Ltd v Asst CIT (2013) 29 Taxmann.com 62 (Mum) 4. SC Enviro Agro India Ltd Vs. DCIT Mumbai (2013) 34 taxmann.com 127. 5.Festo Controls (P) Ltd. Vs. DCIT Bangalore (2013) 30 taxmann.com 16 6. LG polymers .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Trib.) held that services in fact have been rendered by assessee s holding company and the TPO cannot take the amount of ALP as NIL and allowed the Management consultancy fees paid to the holding company. The operative portion of the order of the Hon'ble Tribunal is given below: 6.2 As can be seen from the above, the TPO analysed the accounts of DQ Entertainment PIc and DQE Mauritius in analyzing the nature of payment. Out of the total amount of US$ 7,99,000 paid, the actual Management Consu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the year, which was placed at page 170 of the Paper Book. As can be seen from the details of payments made, placed at page 171 of the Paper Book, the amount of US$ 799,174 charged on 31-03- 08 was paid in three installments of US$ 3,00,000 on 14-09- 2010, US $ 1,99,174 on 25-10-2010 and US$ 3,00,000 on 04-01- 2011. It is noticed that even though invoice was raised on 31-03- 2008 for whole year instead of quarterly billing, the payments were made from September, 2010 to January, 2011 with subst .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

management and consultancy services. To that extent his order has to be approved. 6.3 What the TPO has missed is with reference the amounts other than foreign exchange loss. In the absence of any comparable figures and in the absence of any further enquiry and having the fact that services have been rendered to assessee as accepted by DRP also, TPO cannot take the amount of ALP at NIL, ignoring the payment by assessee of US$ 4,27,000. As per the agreement, all the costs incurred by the DQE Mauri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted to modify the order accordingly. 7. In arriving at the above, we have considered the OECD Transfer Pricing guidelines 2010, Chapter-VII pertaining to 'special considerations for intra group services'. Considering the assessee's agreement with DQE Mauritius which in turn has an agreement with DQ Entertainment PIc, and the reimbursement of cost from one company to another, we agree with the TPO's observation that foreign exchange loss in financial transactions cannot be conside .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

21. Ld. DR submitted that the payment of management fee was made to the Board of Directors (BOD) of the AE (DQ Plc.), the ultimate holding company, as they were rendering invaluable advice and guidance to the assessee company. The Board of Directors of DQ Plc., have been instrumental in bringing in a number of projects with important customers. These projects have been executed by DQ India over the period. Further the business of DQ India is growing with the support of BOD of DQ Plc. However, t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cutive Director - Sanjay Saxena - Non Executive Director It is seen from the submission that DOE Mauritius has the following key management personal - 1. Tapaas Chakravarti - Director 2. Marc Yan Fook Cheong - Director 3. Li Fap Kien Kam Young - Director As per the Annual Report of the taxpayer following are the directors - 1. Tapaas Chakravarti - CMD & CEO 2. Akula Ramakrishan - Additional Director 3. Lakshminarayan Nagu - Additional Director 4. Rashmi Chakravarti - Additional Director 5. K .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the TP document that the services provided related to day-to-day operations. Therefore the services provided by the BoD of DQ Plc., are nothing but a part of shareholder activity and for duplication of services. It is but natural that any holding company and its directors will provide advice and guidance to its step down subsidiary. Such services do not form part of the 'intra group services' as per the OECD guidelines. Shareholder activities, duplicate services and incidental services .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es 732,570 Total 750,070 Add 5% 37,504 Grand Total 787,574 Ld. DR submitted that just like the last year the major item of cost is Consultancy Charges of 732,570 USD. These are the charges paid to the DQE Plc., which are the expenditures made by it and which in turn have been providing management consultancy to the taxpayer. There is no value addition made by the taxpayer company and as such were required to be passed through at cost. Other items of expenditure have no bearing on the provision o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s per the MoU and OECD guidelines. Respectfully following the earlier decision, we are inclined to allow the grounds raised by the assessee. Accordingly, ground No. 8 is allowed. 23. As regards ground No. 9 pertaining to mark up on travel and other expenses reimbursed by the AE of ₹ 77,36,985/-, it is observed that DQE India had incurred expenses on behalf of DQE Ireland in the nature of travel & other expenses. DQE India recovered the same from DQE Ireland on the basis of actual costs .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hese transactions have no impact on profit & loss account. 24. Ld. TPO applied mark -up on reimbursement of travel and other expenses @ 10%, stating that the same was reasonable which any independent party would be willing to pay. Assessee submitted that it is only reimbursement of expenses incurred by the company on behalf of its AE and there is no services rendered. This resulted in an adjustment of ₹ 7,73,699/- to the profit of the assessee company. 25. When the assessee raised obje .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the TPO was justified and accordingly, declined to interfere with the order of the TPO and the ground of objection was rejected. 26. Ld. AR submitted that DQE India had incurred expenses on behalf of DQE Ireland in the nature of travel & other expenses. DQE India recovered the same from DQE Ireland on the basis of actual costs incurred. During the assessment year 2010-11 the assessee incurred amount of ₹ 77, 36, 985/- on behalf of its AE DQE (Ireland) towards travel expenses and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tions have no impact on profit & loss account. 26.1 Ld. AR submitted that despite the submissions made Ld TPO applied mark -up on reimbursement of travel and other expenses @ 10%, stating that the same was reasonable which any independent party would be willing to pay. It is submitted that it is only reimbursement of expenses incurred by assessee on behalf of AE and there is no services rendered This resulted in an adjustment of ₹ 7,73,699/- to the profit of the assessee company. 26.2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

p of 10% based on the profit earned by the assessee is factually and legally incorrect. 26.3 Ld. AR submitted that in M/s. Cognizant Technology Solutions India Pvt. Ltd v, ACIT ITA Nos.114 & 2100(Mds)/2011 the Bench held that "The next issue raised by the assessee is against the addition made by the Transfer Pricing Officer on the ground of reimbursement of expenses. The Transfer Pricing Officer has made a mark up of 5 per cent on certain travel cost incurred by the assessee and reimbur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ded in favour of the assessee." 27. Ld. DR submitted that the TPO considered markup of 10% on these reimbursements and accordingly computed the ALP and adjustment of ₹ 7,73,699/- was computed. He submitted that the assessee submitted that the markup adopted by the TPO of 10% is incorrect and the reimbursements received are at arm s length. Ld. DR submitted that the TPO has considered 10% markup as no independent party would render such services without any markup. Hence, the mark up m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ctions. These transactions are not in any way connected to the nature of business of assessee. These are the services rendered by outsiders for the AE s and only payment was made by assessee and got reimbursement from AE . Since there is no element of service by the assessee, adding markup on these kind of transactions are not justified. As held in the case of M/s Cognizant Technologies Solution (spra), the additions made were deleted by Chennai Bench of ITAT. Accordingly, the grounds raised by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version