TMI Blog2020 (3) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the same cannot be construed as loan advanced to the assessee company. Once the same is excluded and the loans given by the aforesaid two entities are considered independently, we find that none of the aforesaid parties had advanced loans more than 51% of book value of total assets of the assessee company. Hence it could be safely concluded that the aforesaid two entities cannot be construed as AEs of the assessee company within the meaning of section 92A(2)( c) of the Act which is the case of the ld DRP. In this regard, the ld DR vehemently argued that the assessee itself had reported these two parties to be AEs in its Form 3CEB. We are unable to persuade ourselves to accept to this argument of the ld DR for more than one reason that the facts of the assessee company are staring on us from its financial statements; moreover the plain language of the statute is unambiguous and it is very well settled that there is no estoppel against the statute. See M/S VEER GEMS [ 2018 (7) TMI 382 - SC ORDER] Thus we hold that Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK cannot be deemed to be AEs of the assessee company within the meaning of section 92A(2)( c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the assessee is engaged in providing ship management and consultancy services. We find that the assessee had submitted the details of shareholding pattern and details of its directors and directors of Associated Enterprises (AEs) concerns before the ld TPO and claimed that the entities involved in the transaction are not AEs within the meaning of section 92A of the Act. The ld TPO observed that the assessee itself had included those concerns as the AEs in its Form 3CEB filed along with the return of income and hence the objection of the assessee was rejected. Before the proceedings before the ld TPO, Shri Rajeev Kumar Singh, Director of the assessee company appeared in person and submitted the following primary facts which are undisputed and indisputable :- a) That he was earlier working as Superintendent in Hong Kong with M/s. Fleet Management Ltd. Hong Kong (owned by Noble Group) (MD was Shri Kishore Rajwanshi). b) There he was given job of handling ships of M/s. Pureborid Ltd, UK. (Owner- Shri Ramesh Kansagra and Shri Bhupendra Kansagra) c) Then he was requested by Kansagras to handle their ships on behalf of M/s. Fleet Management Ltd by opening an office in Ix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 92A(2)(m) of the Act. We find that the assessee had contended that the directors of Union Maritime Ltd had not relationship with the operations of Sovereign Safeship Management Pvt Ltd. We find that the assessee before the ld DRP had disputed the conclusion of the ld TPO that the assessee was formed to serve a mutual interest and hence as per the provisions of section 92A(2)(m) of the Act if there exists between the two enterprises, any relationship of mutual interest, as may be prescribed , the companies are Associated Enterprises. The assessee submitted that as per the provisions of section 92A(2)(m) of the Act, two enterprises can be termed as AEs if there exists between the two enterprises, any relationship of mutual interest, as may be prescribed , however, no such relationship of mutual interest had yet been prescribed by the CBDT. 5. As per Form 3CEB, the assessee had reported the following international transactions in Form 3CEB :- Ship Management and Consultancy Services M/s Sovereign Ship Management Ltd, UK - ₹ 14,70,888/- M/s Premier Ship Management Ltd, UK - ₹ 21,71,108/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,95,078/- 8,02,70,661/- 6.2. Accordingly, the ld DRP observed finally that Sovereign Ship Management Ltd and Premier Ship Management Ltd are participating directly, Union Maritime Ltd is participating indirectly, in the capital of the assessee company and hence these two concerns become AEs of the assessee company in terms of section 92A(2)(c ) of the Act. Accordingly, the ld DRP upheld the action of the ld AO / ld TPO in- a) Treating these two entities as Aes b) Gross amount received by the assessee company includes reimbursement of expenses on cost to cost basis and hence the same should not be considered as fees for the ship management and consultancy services provided to the AEs. c) Transactional Net Margin Method (TNMM) would be the Most Appropriate Method (MAM) as against the Cost Plus Method (CPM) adopted by the assessee in its TP Study Report d) EDCIL (India) Limited was directed to be excluded as a comparable company. e) ICRA Management Consulting Services Ltd was rightly included as a comparable company. f) IDC (India) Ltd was directed to be excluded as a comparable company. g) Inclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement Ltd, UK or Premier Ship Management Ltd, UK should have independently advanced loan to the assessee company which more than 51% of book value of total assets of the assessee company. In the instant case, only if the loans advanced by both Sovereign Ship Management Ltd, UK and Premier Ship Management Ltd, UK are combined, the said provision is satisfied. Moreover, the advances received by the assessee company from Sovereign Ship Management Ltd, UK in the sum of ₹ 2,34,34,694/- are in the nature of business advances for rendering ship management and consultancy services by the assessee company to the said party and hence the same cannot be construed as loan advanced to the assessee company. Once the same is excluded and the loans given by the aforesaid two entities are considered independently, we find that none of the aforesaid parties had advanced loans more than 51% of book value of total assets of the assessee company. Hence it could be safely concluded that the aforesaid two entities cannot be construed as AEs of the assessee company within the meaning of section 92A(2)( c) of the Act which is the case of the ld DRP. In this regard, the ld DR vehemently argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled . In this sense, Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as 'associated enterprises'. Section 92A(1) and (2), in that sense, are required to be read together, even though Section 92A(2) does provide several deeming fictions which prima facie stretch the basic rule in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in control of the other enterprise. What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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