Income Tax Appellate Tribunal - Delhi
M/S Le Passage To India Tours & Travels ... vs Acit, New Delhi on 4 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES 'I-1', NEW DELHI
Before Sh. Sudhanshu Srivastava, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 2098/Del/2016 : Asstt. Year : 2011-12
Le Passage to India Tours & Vs Asstt. Commissioner of Income
Travels Pvt. Ltd., E-29, Hauz Tax, Circle-15(1),
Khas, Main Market, New Delhi-110002
New Delhi-110016
(APPELLANT) (RESPONDENT)
PAN No. AAACL8370K
Assessee by : Sh. Ajay Vohra, Sr. Adv.
Revenue by : Sh. Sanjay I. Bara, CIT DR
Date of Hearing: 03.09.2019 Date of Pronouncement: 04.09.2019
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been fil ed by the assessee agai nst the order dated 15.02 .2016 passe d by the AO u/s 143(3) r.w .s. 144C of the Income Tax Act.
2. Foll owing grounds have been rai sed i n thi s appeal :
"TP adjustment of Rs 83,49,428/-
On the facts and circumstances of the case and in law:
1.1. The assessment order/ directions passed by the Assessing Office ('AO') / Tran sfer Pricing Officer ('TPO') / Dispute Resolution Pan el ('DRP') is illegal, unjust, bad in law and highly excessive.
1.2. The TPO & DRP failed to conside r the Functional, Assets and Risk profile (for short "FAR") of the assessee and its inbound and outbound tourist services 2 ITA No. 2098/Del/2016 Le Passage to India Tours & Travels Pvt. Ltd.
segments and erred on facts and in law in comparing the Advertisement & Publicity and Business promoti on expenses (for sh ort " AMP expenses") of inbound and outbound touri st services segment without appreci ating that FAR of these two segments is completely different and thereby, erred, in making addition of Rs 83 ,49,428/- as difference in ALP of AMP expenses.
1.3. The TPO & DRP erred on facts and in law, in characteri zing AMP expenses as 'International Transaction of rendition of bran d promotion services' (for short "internati onal transacti on") by assessee to its AE.
1.4. The TPO & DRP failed to consider the scope of licensing agreement between a ssessee and its AE by which a mere right to use brand name "TUI" has been granted by AE t o assessee in consideration of licensing fee of Rs 1,62,658/-, and thereby erred on facts and in law in alleging a further understanding between the assessee and its AH rega rding promoting brand name.
1.5. The TPO & DRP erred on f acts and in law, in characteri zing AMP expenses as international transaction, in the absence of a ny 'arrangement' or 'understanding' or any conduct by which assessee and its AEs can be said to be 'acting in conce rt' so as to prom ote the brand of AE.
1.6. The TPO & DRP failed t o appreciate that assessee is carrying on business as full risk bearing entrepreneur and i s incurring AMP expenses for its own benefit and not at the behest of AE, and further failed to conside r that an expenditure cannot be disallowed wholly or pa rtly because it incidentally benefits the third party.
1.7. The TPO & DRP failed to appreciate that determination as t o whether an ex penditure is re quired to be incurre d for the pu rpose of business is domain of assessee/businessman.
1.8. The purported inference of 'international transaction ' and conse quent adju stment of excessive 3 ITA No. 2098/Del/2016 Le Passage to India Tours & Travels Pvt. Ltd.
AMP expenses by compa ring AMP/sales from inbound tourist services segment with AMP/sales of outbound tourists services segment (in other words "Bright Line Test") is outside the scope of substantive and machinery provisions as enshrine d in sec 92A to sec 92F on transfer pri cing contained in Chapter X of the Income Tax Act. 1961.
1.9. That method ("Bright Line T est") applied by TPO and upheld by DRP to determine ATP of AMP expenses is not one of the specified methods provided in see 92C of the Act.
1.10. The TPO and DRP failed to consider that assessee is the economic owner of the brand "TUI" in India and thus, expenses incurred on a dvertisement and promoti on of bran d TUI. have directly benefitted the assessee in creation of turnover and market share, and further failed to consider that AMP expenses incurred by assessee a re revenue expenses, and that these expenses have not result ed in any enduring benefit to the assessee or to its AE.
1.11. Without prejudice, the TPO and DRP failed to consider that assessee is more t han compensated by the AE for incidental benefit, if any by way of lower rate of license fee for use of brand name TUI and by adjusting the price of services.
1.12. Without prejudice, the TPO and DRP failed to consider that AMP expenses are closely linked to tourist services rendere d by assessee and therefore ought to be benchmarke d togeth er and further failed to appre ciate that OP/OC of asse ssee from Outbound Tourists Services Segment after factoring AMP expenses is at Arm's length.
1.13. Without prejudice, the TPO and DRP erred on facts and in law , in re jecting the set of 8 independent compa rable companies, by which assessee sought to show that AM P, Sales of asse ssee is at arm's length.
1.14. Without prejudice, the TPO and DRP, failed to appreci ate that cost of overseas representatives of Rs 2,07,53,557/- ought to form pa rt of AMP expenses of 4 ITA No. 2098/Del/2016 Le Passage to India Tours & Travels Pvt. Ltd.
inbound tourist se gment, while making com parison of AMP/Sales of Inbound and Outbound Segments.
1.15. Without prejudice, the TPO and DRP erred on facts and in law in holding that a mark-up should be earned by assessee on AMP expe nses alleged to have been incurred for and on behalf of AE.
1.16. Without prejudice, the DRP e rre d on facts and in law, in directing the TPO to take average gross profit of assessee as mark-up on AMP ex penses.
1.17. Without prejudice, the DRP fail ed to exclude selling expenses and thus erred in making an observati on, that all expenses a re in the nature of advertising expenses and further erred in delegating the determination of chara cter of selling expenses to TPO.
Corpor ate Tax d isallow ance of Rs 3,05,79,583/-
2.1 That DRP erred on facts and in law in upholding the action of AO regarding disallowance of:
• Retainership Fee : Rs 1,89.21,999/-; • Reimbursement of Expenses to Overseas representatives: Rs 64,72,473/-
• Advertisement & Publicity Fee : Rs 47,41,624/- • Other Charges : Rs 4,43,487/-
u/s 195 r.w.s 40(a)(i) for non- deduction of tax at source by tre ating payments a s "fee for technical services' under the Income Tax Act, 1961.
2.2 That DRP and AO failed to appreciate that above payments are not taxable either under the Income Tax Act, 1961 or under DTAA, in the absence of Business Connection or Permanent Establishment of the non -
resident in India.
2.3 That the explanations given, evidence produced and material pla ced and made ava ilable on re cord have not been properly considere d and judicially interpreted and the same do not justify the addition made.
5 ITA No. 2098/Del/2016Le Passage to India Tours & Travels Pvt. Ltd.
3. That the additions ma de a re ba sed on mere surmises and conjuncture s and t he same cannot be justified by any material on record and against the principle of natural of justice.
4. That interest U/s 234B, 234C & 234D has been wrongly and illegally charged.
The above grounds are without prejudice to each other."
3. Ground Nos. 1.1 to 1 .17 deal s wi th AMP expenses of i nbound and outbound touri st servi ces segments.
4. On the i ssue of outbound touri st segments, i t was brought to our noti ce by the l d. AR, of the judgment of the Co-ordi nate Bench of ITAT Del hi i n assessee's own case for the assessment years 2009-10 and 2010-11. The rel evant part of the orde r dated 19.07.2019 i s reproduce d for ready reference:
"25. The Hon 'ble Delhi High Cou rt in the decisi ons of Maruti Suzuki India Ltd., Whirlpool (supra) and others have recognize d the fact that AMP expenditure a re incurred in respe ct to third pa rty costs insofa r as these represent amounts pai d or payable to unrelated pa rties (media houses, advertising agencies, marketing bodies etc.) and cannot be treated as related party transactions merely because some incidental benefit is said to accrue to the a ssessee. In this context, the Court cited the Supreme Court de cision of E.D. Sa sson (1954) 26 ITR 27 where it was held that an expenditure cannot be disallowed merely on the ground that it led to an incidental benefit to a third party as long as it w as incurred w holly and exclusively for business purpose .
26. This means that income/expenditure must arise qua an international transaction meaning thereby that the income has accrued to the Indian Tax Payer under International Transactions ente red into with an associate d enterprises or expenditure payable by the Indian Enterprises ha s accrued/arising unde r 6 ITA No. 2098/Del/2016 Le Passage to India Tours & Travels Pvt. Ltd.
international transaction with the foreign AE. The scheme of Chapter-X of the Act is not to benchma rk transactions between the Indian Enterprises and unrelated third pa rties in India where there is no income arising t o the Indian Enterprises f rom the foreign payee or there is no payment of expenses by the Indian Enterprises to the AE. Conversely, the transfer pricing provisions enshri ned in chapter-X of the Act do not seek to benchmark transa ctions between two Indian Enterprises.
27. A careful pe rusal of the order of the authority below, clea rly shows that the Revenue is grossly failed in bringing cogent materi al evidence on record to demonstrate that there exist an international transaction so fa r as outbound business is concerned.
28. Considering the facts of the case in hand in totality in the light of a djustments ma de by the T PO as mentioned elsewhere, we are of the considered view that there exist no international transactions and therefore, there w as no liability on the assessee to report the same as internation al transactions. We, accordingly hold that AMP in regard t o the outbound business did not constitute an inte rnational transaction and therefore the AL P dete rmined by the TPO in both years is dire cted to be deleted. Th e common grievance is allowed in both appeals."
5. Si nce, there i s no materi al change in the facts of the case, whi ch coul d be brought t o our kn owl edge by any of the parti es, foll owi ng the order of the Tri bunal in the case of the assessee for the ea rl i er years, the appeal of the assessee on thi s ground i s all owed.
6. Ground Nos. 2.1 to 3 deals with overseas representation charges/retainership fee/reimbursement of expenses to overseas representatives and advertisement & publicity fee.
7 ITA No. 2098/Del/2016Le Passage to India Tours & Travels Pvt. Ltd.
7. The similar matter stands adjudicated by the order of the Co- ordinate Bench of ITAT Delhi dated 29.05.2015 in the assessee's own case wherein it was held that the services provided by the agents would not be in the nature of FTS and hence, no TDS is liable to be deducted. Since, the matter stands adjudicated, in the absence of any change in the material facts, we hereby delete the addition made by the Assessing Officer. Regarding the advertisement & publicity expenses, it was argued that the amounts have been paid during the Tribal Mart to foreign agencies. Since, no issue of TDS arises on the payments made to foreign parties, the disallowance made u/s 9(1)(vii) r.w.s. 40(a)(ia) of the Act is hereby order to be deleted. Regarding the AMC charges for software support, we find that this issue has been decided against the assessee by the order of the Tribunal dated 29.05.2015 for the assessment year 2010-11. The decision of the Tribunal was based on the judgment of the Hon'ble High Court in the case of CIT Vs Havells India Ltd.(2012) 21 Taxman 476 (Del.). Since, the issue is similar to the issue dealt in earlier years, we hereby hold that the amount on account of AMP expenses for computer software is hereby confirmed.
Membership and subscription charges
8. During the arguments, it was brought to our notice that the similar matters has been remanded back to the file of the Assessing Officer by the Co-ordinate Bench of the ITAT vide order dated 19.07.2019 holding that this issue needs to be verified afresh in the light of DTAA. We accordingly restore this issue to the files of the AO. The AO is directed to examine the membership and subscription fees in the light of relevant DTAA and decided the issue afresh as per the provisions of law after giving a reasonable opportunity of being heard to the assessee. Accordingly, this grievance is allowed for statistical purposes. Hence, following the order of the earlier years, we hereby remand the matter back to the file of the 8 ITA No. 2098/Del/2016 Le Passage to India Tours & Travels Pvt. Ltd.
Assessing Officer to examine the issue afresh and take a decision in accordance with law.
9. In the result, the appeal of the assessee is partly allowed. (Order Pron ounced i n the Open Court on 04/09/2019).
Sd/- Sd/-
(Sudhanshu Srivastava) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 04/09/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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