Karnataka High Court
The Commissioner Of Income Tax vs M/S Toyota Kirloskar Motors Pvt Ltd on 28 June, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 28TH DAY OF JUNE 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.62/2017
BETWEEN:
1. THE COMMISSIONER OF INCOME TAX
LTU, JSS TOWERS
BSK III STAGE,
BENGALURU - 560 085
2. THE DEPUTY COMMISSIONER OF INCOME TAX
LTU, JSS TOWERS,
BSK III STAGE,
BENGALURU - 560 085 ... APPELLANTS
(BY SRI.ARAVIND K V, ADV.)
AND:
M/S TOYOTA KIRLOSKAR MOTORS PVT. LTD.,
PLOT NO.1, BIDADI INDL. AREA,
RAMANAGARA TALUK, BIDADI,
BENGALURU
PAN: AAACT 5415B ... RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A
OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED:30/06/2016 PASSED IN IT(TP)A NO.108/BANG/2015,
FOR THE ASSESSMENT YEAR 2010-2011. PRAYING TO : 1.
Date of Judgment 28-06-2018, ITA No.62/2017
The Commissioner of Income-tax & another Vs.
M/s. Toyota Kirloskar Motors Pvt. Ltd.,
2/15
FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS
PASSED BY THE INCOME TAX APPELLATE TRIBUNAL,
BENGALURU IN IT(TP)A NO. 108/BANG/2015
DATED:30/06/2016 AND CONFIRM THE ORDER OF THE DRP
CONFIRMING THE ORDER PASSED BY THE DEPUTY
COMMISSIONER OF INCOME TAX, LTU, BENGALURU AND
ETC.,.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,
Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants - Revenue This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench 'B', Bangalore, in IT[TP]A No.108/Bang/2015 dated 30.06.2016, relating to the Assessment Year 2010-11.
2. The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal is as under:
Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 3/15
1. "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the direction of the DRP with regard to payment of Royalty to its associated enterprises whereby the DRP had set aside the TPO findings that Royalty payment cannot be allowed and therefore proposed an TP Adjustment under 92CA for sum of Rs.127,32,50,000 by following its earlier order in the case of assessee which has not reached finality and even when the TPO had applied the test of benefit obtained by the assessee by receiving intangibles against the said payment of Royalty?
2. "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the a TPO finding with regard to treating the Trading and Manufacturing segments separately by following its earlier orders which has not reached finality?"
Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 4/15
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
"8. We find that the relevant record and evidence was duly produced by the assessee before the TPO and therefore the DRP is justified in not accepting the finding of the TPO in determining the Arm's Length Price of royalty at NIL. An identical issue was considered by this Tribunal in assessee's own case for the Assessment Year 2007-08 and further for the Assessment Year 2008-09. For the Assessment Year 2007-08 in assessee's own case, the Tribunal has discussed the issue at length in paras 40 to 48 and conclusion of this finding in para 48 are as under:
"48. On the issue whether the TPO can come to a conclusion that the ALP of an international transaction is Nil because no services were rendered or that Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 5/15 the assessee did not derive any benefit from the AE for which payments were made, we have considered the submissions of the learned counsel for the assessee. This issue is purely academic because we have already held that the conclusions of the TPO/DRP that the trading and manufacturing segment of the Assessee are distinct and not inter related warranting combined transaction approach is not correct and that a combined transaction approach has to be adopted and that on the basis of combined transaction approach the price paid for the international transaction is at Arm's Length. We may also that legally the TPO should adopt the ALP as nil. On similar approach by TPO adopting ALP at Nil the ITAt, Bangalore Bench, in the case of Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 6/15 M/s. Festo Controls Pvt. Ltd., Vs. DCIT in ITA No.969/Bang/2011 [AY: 2007-08] Dated 4.1.2013, the Tribunal examined the question as to whether the TPO can determine the ALP at nil on the ground that no services were rendered. The Tribunal, on the above issue followed the decision of the Mumbai Bench of the ITAT in the case of Castrol India Ltd. v. ACIT in ITA No.3938/MUM/2010 dated 14.09.2012 wherein it was held that it was incumbent upon the TPO to workout the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot be disallowed by taking the ALP at Nil. The Tribunal also referred to the decision of the Hon'ble Delhi High Court in the case of CIT v.
EKL Appliances Ltd. ITA Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 7/15 No.1068/2011 dated 29.03.2012. In the aforesaid decision, the assessee entered into an agreement pursuant to which it paid brand fee/royalty to an associated enterprise. The TPO disallowed the payment on the ground that as the assessee was regularly incurring huge losses, the know-how/brand had not benefited the assessee and so the payment was not justified. This was reversed by the CIT [A] & Tribunal on the ground that as the payment was genuine, the TPO could not question commercial expediency. On appeal by the department, the Hon'ble Delhi High Court held that the " transfer pricing guidelines' laid down by the OECD make it clear that barring exceptional cases, the tax administration cannot disregard the actual transaction or Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 8/15 substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. The guidelines discourage re-structuring of legitimate business transactions except where [i]the economic substance of a transaction differs from its form and [ii]the form and substance of the transaction are the same but arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner. The OECD guidelines should be taken as a valid input in judging the action of the TPO because, in a Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 9/15 different form, they have been recognized in India'x tax jurisprudence. The Hon'ble Court held that it is well settled that the revenue cannot dictate to the assessee as to how he should conduct his business and it is not for them to tell the assessee as to what expenditure the assessee can incur [Eastern Investment Ltd., 20 ITR 1[SC], Walchand & Co., 65 ITR 381 [SC] followed). Even Rule 10B[1][a] does not authorize disallowance of expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same. In light of the aforesaid decisions, we are of the view that the stand taken by the assessee in this regard deserves to be accepted. It is clear from the decisions referred to above that the TPO has to work out the ALP of the Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 10/15 international transaction by applying the methods recognized under the Act. He is not competent to hold that the expenditure in question has not been incurred by the assessee or that the assessee has not derived any benefits for the payment made by the assessee and therefore he cannot consider the ALP as NIL. We hold accordingly."
A similar view has been taken by the Tribunal for the Assessment Year 2007-08. Accordingly, we do not find any error or illegality in the directions of the DRP for this issue.
11. Ground No.8 is regarding trading and manufacturing segments treated by the TPO separately for the purpose of determining the ALP as against the integrated transaction considered by the assessee for TP Analysis.
Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 11/15 The assessee has adopted a combined transaction approach in arriving at the ALP under the TNMM at entity level. The TPO proceeded to determine the ALP by treating the trading and manufacturing segments as separate transactions.
12. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. At the outset we note that an identical issue has been considered by this Tribunal in Assessee's own case for the Assessment years 2003-04, 2007-08 and 2008-09. We further note that the TPO for the Assessment Year 2012-2013 has accepted the manufacturing and trading segment as integrated and combined transaction for the purpose of determining the ALP Under TNMM."
4. The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl.
Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 12/15 Commissioner of Income Tax & Anr. V/s.
M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference:
"Conclusion:
55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases.
Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 13/15 Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law.
56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 14/15 and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
5. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
6. Hence, the Appeal filed by the Appellants-
Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Date of Judgment 28-06-2018, ITA No.62/2017 The Commissioner of Income-tax & another Vs. M/s. Toyota Kirloskar Motors Pvt. Ltd., 15/15 A copy of this order shall be sent to the Respondent-Assessee.
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JUDGE Sd/-
JUDGE AN/-