TMI Blog2020 (3) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... s proceeded to determine the arm's length price on a purely on ad hoc basis. Whereas, the reading of the AAR ruling, referred to above, clearly demonstrate that highly specialized services, in fact, were rendered by the AE to its Indian subsidiary. Thus, on the basis of facts available on record, we have no hesitation in holding that the determination of arm's length price at nil is without any legal sanctity, hence, cannot be sustained. Accordingly, following the judicial precedents cited before us, we delete the addition made in this regard. TDS u/s 194H - Disallowance u/s 40(a)(ia) - HELD THAT:- Identical view was expressed by the Tribunal while deciding the issue in assessment years 2008 09 and 2009 10. Pertinently, while implementing the direction of the Tribunal in assessment year 2007 08, the Assessing Officer vide order dated 30th December 2016, has allowed assessee s claim of discount given to the distributors which is evident from the copy of the order placed in the paper book. It is also the submissions of the learned Authorised Representative that though similar disallowance was made by the Assessing Officer in the assessment years 2013 14 and 2014 15, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Anand Mohan ORDER SAKTIJIT DEY. J. These cross appeals arise out of assessment order dated 28th January 2016, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ) in pursuance to the directions of learned Dispute Resolution Panel(DRP) 2, Mumbai, pertaining to the assessment year 2011 12. ITA no.1205/Mum./2016 Assessee s Appeal 2. Ground no.1, relates to the addition of ₹ 26,22,23,865, on account of transfer pricing adjustment made on payment of management fee to the Associated Enterprise (AE). 3. Brief facts are, the assessee, formerly known as SABMiller India Ltd., is a resident company and is engaged in the business of brewing, packaging, distribution, marketing and selling of Beer. It is stated that this Group created its presence in India in the year 2002 through the assessee. Thereafter, the Group made various acquisitions of local operational and non operational breweries in India including the Indian subsidiary of the Foster s Group. The acquired breweries were later merged / de merged into the assessee company. Following the process of various business acquisitions, the assessee had entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost base relating to the service provided to the assessee has been clarified and certified by the independent auditor and was found to be at arm's length under Transactional Net Margin Method by treating the AE as the tested party. It was submitted, the AEs operating profit to operating cost is 3% as against the margin of the comparables @ 4.87% in respect of information technology services. Whereas, in respect of non IT services assessee s margin is 5% as against the margin of the comparables at 5.75%. After perusing the submissions of the assessee, the Transfer Pricing Officer observed that before accepting assessee s claim that the payment made towards intra group services is at arm's length, the assessee has to justify the benefits derived by it and also has to furnish the cost base of the cost on which mark up was charged by the AE. To prove the benefit test, the Transfer Pricing Officer called upon the assessee to furnish the following details: i) Whether the services were requested for; ii) When and how they were rendered by the A.E; iii) Copy of the written agreement; and iv) At what rate the services are available in local market. 4. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, learned DRP did not interfere with the findings of the Transfer Pricing Officer. 5. The learned Authorised Representative submitted, the Transfer Pricing Officer while determining the arm s length price of the intra group services at nil has not applied any one of the prescribed methods. He submitted, under the Group Service Agreement the assessee has received various services relating to general, managerial and consultancy services, technical services, information technology services, etc. He submitted, as per the terms of the agreement, SABMiller Group provides specialized services as well as global strategies and policies that are aimed at assisting its operations in accordance with local revenues. He submitted, as per the group transfer pricing policy, cost had been allocated on a reasonable basis, such as, time spent, head count, number of users, etc., and chargeable to the assessee on full cost plus mark up basis, however, ultimately no mark up was charged. He submitted, in the course of proceedings before the Transfer Pricing Officer, the assessee had submitted that supporting documents / evidences to demonstrate that management group services have actually been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither look into the commercial expediency or benefit derived. He submitted, while the assessee has benchmarked the transaction applying TNMM, the Transfer Pricing Officer has determined the arm s length price at nil without following any method at all. He submitted, if the Transfer Pricing Officer was not satisfied with the benchmarking of the assessee, he should have determined the arm s length price by applying any other appropriate method, which is not the case. Thus, he submitted, the determination of arm s length price by the Transfer Pricing Officer at nil is without authority of law. The learned Authorised Representative submitted, the management group services were not only rendered but also received by the assessee. Further, he submitted, the services received by the assessee have resulted in benefit. He submitted, the assessee did not opt for availing the services from a third party as the processes and services are unique to SABMiller Group and confidentiality has to be maintained. He submitted, the services are essential for smooth running of the business. In case, the assessee would have availed such services from a third party, it would have to pay more and more over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AEs would override the transfer pricing provisions as contained in Chapter X of the Act. Drawing our attention to sub section (2) of section 92 of the Act, he submitted, it empowers the Assessing Officer to determine the arm's length price of benefit, service or facilities. He submitted, there is no restriction imposed on the Transfer Pricing Officer to only determine the arm's length price or cost of expenditure allocated. He submitted, the cost or expenditure allocated or apportioned as a result of any agreement has to be determined having regard to the arm's length price of the benefit, services or facilities provided to any AE. Therefore, the Transfer Pricing Officer has no alternative but to ascertain the benefit derived from the entire arrangement entered into by the assessee as well as the actual services received from the AE. He submitted, unless the receipt of service as well as benefit accruing is ascertained, the Transfer Pricing Officer cannot determine the arm's length price vis a vis an independent enterprise. Therefore, it would be wrong to say that the Transfer Pricing Officer cannot enter into the arena of actual receipt of service or the benefit d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received and secondly, the quantification of such services in terms of actual expenditure incurred and commensurate benefit therefrom has been done on a proper basis. At the third stage, it requires to be seen if the payment made by the assessee is at arm's length. He submitted, if the assessee fails at the first or second stage of providing actual rendering and receiving of services and quantification of such services in terms of actual expenditure incurred and commensurate benefit derived therefrom, it is not necessary for the Transfer Pricing Officer to proceed to the third stage of determining the arm's length price as he will be unable to do so. In support of such contention, the learned Departmental Representative relied upon the following decisions: i) Sony Ericsson Mobile Communications India Pvt. Ltd. v/s CIT, [2015] 55 taxmann.com 240 (Del.); ii) CIT v/s Cushman and Wakefield India Pvt. Ltd., [2014] 46 taxmann.com 317 (Del.); iii) Deloitte Consulting India Pvt. Ltd. v/s DCIT, [2012] 22 taxmann.com 107 (Mum.); and iv) Fosroc Chemicals India Pvt. Ltd. v/s DCIT, [2015] 58 taxmann.com 85 (Bang.) (Trib.). 8. We have considered rival submissions in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis the margin shown by the assessee, price paid for the transaction was found to be at arm's length. Apparently, the Transfer Pricing Officer has not accepted the economic analysis of the assessee and has determined the arm's length price of the transaction at nil primarily on the ground that the assessee has not proved the actual receipt of service and the benefit accrued / derived from such service as well as the value of service rendered. We have noted that in the course of proceedings before the Transfer Pricing Officer, the assessee has furnished voluminous documents in the form of correspondence, notes, e mails, invoice raised, etc., to prove not only the actual rendition of service, but also the benefit derived. In fact, before us, the assessee in the written note has enumerated the exact nature of services rendered in terms of the agreement as well as the benefit derived with reference to the documentary evidence filed before the Transfer Pricing Officer. For better appreciation, we think it appropriate to reproduce the same hereunder: Description of services Description of the document Benefits derived by SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unch of Miller High Life in India. The attachments provided by Group Marketing outline the action plan to introduce Miller High Life into India include pricing, how to launch and where to position the product. Group Marketing helps SABMiller India in undertaking a market study in order to ascertain the need for introducing a global brand in India, understanding the preferred tastes of the customers and accordingly, analysis of the right ingredient mix, providing guidance on the packaging, pricing range and identification of the market where these products can be launched initially etc. Group Marketing provide the best launch plan for Miller High Life. This launch has been developed with huge levels of assistance from Group. Ultimately the launch will increase the sales growth and profitability prospects in India. 871-896 For other supporting evidences, please refer submissions dated 11th November 2014 and 19th January 2015 (enclosed as Item 8 and 10 of the Paper book at Page no.394 and 554 respectively) Technical Consulting The water risk assessment is a critical part of brewing beers. In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for such a website and for access to it. 1221-1224 For other supporting evidences, please refer submissions dated 11th November 2014 and 19th January 2015 (enclosed as Item 8 and 10 of the Paper book at Page no.394 and 554 respectively) Corporate Services Intellectual Property services Attached is an example of output from the global Sustainability Assessment Matrix ( SAM ) tool with a detailed assessment for India. SAM is a benchmarking tool to measure progress against SABMiller s 10 sustainable development priorities. The SAM tool benefits the group through providing a benchmarking platform to identify markets which need additional support with Sustainable development priorities. Further SABMiller India benefits from being given clear benchmarking data which they can then target to reduce costs and environmental impact - including being given suggestions that have been identified elsewhere in the group. 1263-1320 For other supporting evidences, please refer submissions dated 11th November 2014 and 19th January 2015 (enclosed as Item 8 and 10 of the Paper book at Page no.394 and 554 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rest of that community. It is hosted on SharePoint Manufacturing KPI Global Evaluation Manufacturing (GEM) is used to ensure alignment and compliance to the principles of the Manufacturing Way and is owned by Group Technical. It is a Web based application for tracking best practices across breweries. Media Library Media Library is used to store images and Video clips to be used for competition and reporting purposes. This is an externally hosted site and can be accessed by SAB Miller employees worldwide via single sign on functionality added to SharePoint Office communicator Office communicator is used to provide presence awareness and instant messaging functionality throughout the SABMiller organization to users who have been enabled on AD. It is an application that is built in to your laptop set up Supplier Audit System SAS provides a single source of master reference data to be used for the generation of Audit Scorecard Excel templates and a central online store of completed Audit Scorecards for global reporting. It is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f computation of arm's length price under different methods prescribed under section 92C of the Act. A careful reading of the order passed by the Transfer Pricing Officer would make it clear that, while determining the arm's length price of intra group services at nil he has not followed any one of the prescribed methods. Therefore, the determination of arm's length price at nil cannot be accepted, as it is not in accordance with the statutory provisions which the Transfer Pricing Officer is duty bound to follow. More so, when the Transfer Pricing Officer himself has admitted that the evidence on record does show that some services have been rendered. If the Transfer Pricing Officer was not convinced with the benchmarking done by the assessee under the TNMM, after rejecting the same he should have conducted an independent benchmarking by following any one of the prescribed methods to determine the arm's length price of the intra group services which he himself, to some extent, acknowledges to have been received by the assessee. 13. It is relevant to observe, the Hon ble Delhi High Court in EKL Appliances (supra), has held that it is not necessary for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case of CIT v/s Johnson Johnson Ltd., ITA no. 1030/2014, dated 7th March 2017, the Hon'ble Jurisdictional High Court has reiterated the same legal proposition by holding that the Transfer Pricing Officer is mandated by law to determine the arm's length price by following one of the methods prescribed under section 92C r/w rule 10B. 14. In the facts of the present case, the Transfer Pricing Officer admits that the evidences brought on record demonstrate that some services were actually received by the assessee. However, he has failed to determine the arm's length price by following any one of the prescribed method. Thus, for the aforesaid reason, the adjustment made by the Transfer Pricing Officer cannot be sustained. In fact, very recently in INA Bearings India Pvt. Ltd. v/s DCIT, (supra) and in case of M/s. Ipsos Research Pvt. Ltd. V/s ACIT, (supra), the Tribunal has again disapproved the determination of arm's length price at nil by the Transfer Pricing Officer without following any one of the methods prescribed under the statute. Thus, keeping in perspective the ratio laid down in the judicial precedents cited before us, we have to hold that the adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilizing the resources. The access to IT online platform provided to the Indian companies conveys privileged secret information to which the access control standard applies and is provided to defined users with unique user ID. They have also observed that AE is also providing engineering support services through online links. The AAR observed, various services rendered under the GSA can be classified as technical services and fee is charged as consideration for the provision of technical and consultancy services, skill, knowledge, knowhow, process, etc., made available to the Indian companies. Thus, after threadbare analysis of the TTA and GSA as well as other material on record, the AAR ultimately in ruling dated 6th June 2018, in AAR no.1199 of 2011, has held as under: 11. In view of the foregoing discussion, the questions posed to us for a Ruling are answered as under: 1. The amount receivable by the Applicant from SKOL Breweries Limited and SABMiller Breweries Private Limited (i.e., Indian Companies) under the Group Service Agreement towards Financial Consulting, Improved Personal Strategy, Business Advisory Services, Corporate Affairs, Marketing, Technical Consulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer was of the view that the discount offered to distributors has to be treated as commission and since the assessee has not deducted tax at source on such amount, it has to be disallowed under section 40(a)(ia) of the Act. Therefore, he called upon the assessee to explain why the amount of ₹ 34,81,60,500. Though, the assessee objected to the proposed disallowance by submitting that the payment made is not in the nature of commission, hence, not covered under section 194H of the Act, however, rejecting the submissions of the assessee the Assessing Officer disallowed the amount under dispute under section 40(a)(ia) of the Act. While considering assessee s objection on the issue, learned DRP noted that while deciding identical issue in assessee s own case for the assessment years 2007 08 and 2008 09, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication. Stating that the assessee has not brought to its notice any record and material in support of its claim of giving discount to the distributors duly approved by the Board of Directors, they held that assessee s claim is inadmissible. 19. The learned Authorised Representative submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh adjudication. Identical view was expressed by the Tribunal while deciding the issue in assessment years 2008 09 and 2009 10. Pertinently, while implementing the direction of the Tribunal in assessment year 2007 08, the Assessing Officer vide order dated 30th December 2016, has allowed assessee s claim of discount given to the distributors which is evident from the copy of the order placed in the paper book. It is also the submissions of the learned Authorised Representative that though similar disallowance was made by the Assessing Officer in the assessment years 2013 14 and 2014 15, however, the DRP has allowed assessee s claim by deleting the disallowance. Considering the fact that while deciding identical issue in assessee s own case for the assessment year 2007 08, 2008 09 and 2009 10, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication with specific direction, we are inclined to follow the same and restore the issue to the Assessing Officer for fresh adjudication with similar direction. Suffice to say, if similar claim made by the assessee was allowed by the Assessing Officer in assessment year 2007 08 and by the DRP in assessment years 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. This ground is allowed for statistical purposes. 30. In the result, assessee s appeal is partly allowed. ITA no.1738/Mum./2016 Revenue s Appeal 31. In ground no.1, the Revenue has challenged the deletion of disallowance of ₹ 12,13,48,125, under section 40(a)(ia) of the Act. 32. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that in the financial year 2006 07, the assessee claimed to have purchased Foster s Brand from Foster s Australia, and has capitalized the same in the fixed assets scheduled under the head trademarks / brands. In the subsequent year, the assessee continued to claim depreciation @ 25% on the said asset. He observed that while completing the assessment for the assessment year 2007 08, the cost of brand was disallowed under section 40(a)(ia) of the Act and accordingly, depreciation claimed of ₹ 12,13,48,125 was also disallowed. While deciding assessee s objection on the issue, the DRP having found that while deciding assessee s appeal on identical issue in assessment year 2007 08, 2008 09 and 2009 10, claim of depreciation has been allowed, followed the same and allowed assessee s claim of depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 38. The learned Authorised Representative on the other hand strongly supporting the decision of the DRP submitted that there is an agreement with the payee and all the facts and material relating to withholding of tax was submitted before the Assessing Officer as well as the Transfer Pricing Officer. Therefore, there is no need for restoration of issue to the Assessing Officer again. 39. We have considered rival submission and perused the material on record. As could be seen, the assessee had entered into a borrowing arrangement with Standard Chartered Bank on a net of tax basis. As per the terms of the agreement, the assessee has computed TDS on a net of tax basis and no tax has been separately debited to the Profit Loss Account. It is also a fact on record that as per the borrowing arrangement, the tax liability, if any, on payment of interest has to be borne by the assessee. Therefore, the tax withheld has to be allowed as expenditure to the assessee. In view of the aforesaid, we do not find any infirmity in the directions of the DRP. Ground is dismissed. 40. In the result, Revenue s appeal is dismissed. 41. To sum up, assessee s appeal is partly allowed and R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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