Income Tax Appellate Tribunal - Chennai
Hyundai Motor India Ltd.,Kanchipuram vs Dcit, Ncc-8(1), , Chennai on 28 February, 2025
आयकर अपीलीय अिधकरण, 'डी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी अिमताभ शु ा, लेखासद केसम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER
IT (TP) A No.56/Chny/2024
िनधा रणवष /Assessment Year: 2020-21
M/s. Hyundai Motor India Ltd., v. The DCIT,
Plot No.H-1, Non Corporate Circle-8(1),
SIPCOT Industrial Park, Chennai.
Irungatukottai,
Sriperumbudur Taluk,
Kancheepuram District-602 117.
[PAN: AAACH 2364 M]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Mr. S P. Chidambaram,
Advocate
यथ क ओर से /Respondent by : Mr. A. Sasikumar, CIT
सुनवाईक तारीख/Date of Hearing : 12.12.2024
घोषणाक तारीख /Date of Pronouncement : 28.02.2025
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Assessing Officer passed u/s.143(3) / 144C(13) of the Income Tax Act, 1961 [herein after "Act"] dated 23.07.2024 for assessment year 2020- 21[hereinafter in short "AY"] pursuant to the DRP directions dated 03.06.2024.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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2. Grounds raised by the assessee are as under:
1. The Appellant objects to the order dated 23 July 2024 under Section 143(3) r.ws. 144C(13) r.w.s 144B of the Income Tax Act, 1961 ('Act') issued by the Assessment Unit. National National Faceless Assessment Centre ('NaFAC') for the aforesaid assessment year on the following grounds:
TRANSFER PRICING GROUNDS The directions of the Dispute Resolution Panel (DRP), the Transfer Pricing order and the Final Assessment order are erroneous in so far as the following issues/adjustments:
2. Attribution of notional income towards deemed brand promotion/development 2.1. The NaFAC/DRP erred in facts and circumstances of the case and in law in confirming the action of the TPO in attributing notional income of Rs.3,81,01,00,000, on the premise that the Appellant has undertaken brand promotion/building activity for its AE i.e., Hyundai Motor Company, South Korea.
TPO exceeded jurisdiction 2.2. The NaFAC/DRP failed to appreciate the fact that the TPO exceeded eeded his jurisdiction by analysing brand promotion/building as a separate international transaction though the NaFAC has not referred the same for determination of ALP as per Section 92CA of the Act.
2.3. The NaFAC/DRP ought to have held that the order of the TPO is vitiated since it is based on a show cause notice that is void ab initio, as it has not established a prima facie case of brand promotion activity undertaken by the Appellant.
2.4. The NaFAC/DRP ought to have held that the TPO has acted in excess ss of jurisdiction by suo-motu suo motu considering the incurrence of advertisement expenses as an "international transaction"
2.5. The NaFAC/DRP erred in facts and circumstances of the case and in law by stating that the Appellant failed to report the "Advertisement "Advertiseme Marketing and Promotion ("AMP") expenses" in the Form 3CEB when the same is not per se an international transaction as per Section 92B of the Act.
2.6. The NaFAC/DRP having acknowledged that the facts and circumstances are similar to the previous Assessment Assessment Years, erred in not following the binding order of this Hon'ble Tribunal in Appellant's own case for AY 2009-10 2009 to AY 2011-12, AY 2013- 14 to AY 2016-17, 2016 wherein similar adjustment towards deemed brand promotion has been deleted by holding that the same same is not an international transaction.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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2.7. It is also to be noted that the impugned adjustment was deleted by this Hon'ble ITAT for AY 2012-13, 2012 AY 2017-18 18 to AY 2019-20, 2019 subsequently after the draft assessment order was passed for the subject year i.e., AY 2020-21.2020
AMP/Brand promotion is not an international transaction 2.8. The NaFAC/DRP erred in not appreciating that the Appellant has not rendered any brand building service to its AE (i.e., Hyundai Motor Company, South Korea) and as such, there is no international international transaction.
2.9. The NaFAC/DRP failed to appreciate that in the absence of contract among the parties (i.e., Appellant and AE), deeming rendition of brand building service is null and void.
2.10. The NaFAC/DRP erred in facts and circumstances and in law by construing the Technology and Royalty agreement entered between the Appellant and the AE to be relating to the rendition of brand building services.
2.11. The NaFAC/DRP, without appreciating the fact that the Appellant is engaged in the manufacture manufacture and sale of cars both in the domestic as well as in the export markets has erroneously confirmed the adjustment made by the TPO that the Appellant does Brand promotion/building activity for its AE.
2.12. The NaFAC/DRP, without appreciating the fact that the marketing expenses are incurred by the Appellant to promote the sale of cars (licensed products) manufactured by it, has erroneously confirmed the conclusion of the TPO as a Brand promotion/building activity.
2.13. The NaFAC/DRP failed to appreciate appreciate that even an independent entity would have charged for brand building service only if the brand building activity has been actually agreed to undertaken as the primary activity and not where the promotion of brand name is ancillary to the core business activity of manufacture and sale of vehicles.
Separate benchmarking is void 2.14. The NaFAC/DRP failed to appreciate the fact that the TPO having accepted the Royalty transaction which is inclusive of right to use "Brand" is at arm's length, is precluded from from once again independently benchmarking the brand usage as separate international transaction.
2.15. The NaFAC/DRP failed to recognize that the TPO having accepted that the overall net margin of the Appellant under TNMM method to be at arm's length as per per Section 92C(2) of the Act read with Rule 10B of the Income tax Rules, erred in independently benchmarking brand usage as a separate international transaction.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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2.16. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the excess margin earned by the Appellant over that of comparable companies indicates that it is the Appellant who has benefited from the use of the brand name and has offered more income for tax in India.
2.17. Without prejudice to the above, the NaFAC/DRP erred in facts and circumstances of the case by confirming the erroneous action of the TPO without appreciating the fact that the TPO himself have accepted that the benefits and costs incurred by the Appellant could not be accurately computed on account of brand.
2.18.
.18. The NaFAC/DRP failed to appreciate that as per the principles laid down in Chapter VII of the OECD TP Guidelines, 2022, the incidental/ancillary benefits, if any, arising out of the AMP expenses incurred by the Appellant does not require any separate compensation as it is not in the nature of active service to AE.
NaFAC/TPO failed to appreciate the business prerogative of the Appellant 2.19. The NaFAC/DRP failed to appreciate that the Appellant is not restricted from creating its own brand and it is the the prudent business decision of the Appellant to use the Brand name of the AE to increase its sales in India.
2.20. The NaFAC/DRP failed to appreciate that the AMP expenses incurred by the Appellant are purely to promote the sales of the cars manufactured and nd not towards promotion of Brand.
2.21. The NaFAC/DRP failed to appreciate that in view of the rights granted in the agreement between the Appellant and the AE, the former gets the right to use the "Brand" and as such the Appellant cannot be deemed to receive rec income for using such brand.
Determination of ALP of alleged brand building service is grossly flawed 2.22. The NaFAC/DRP erred in facts and circumstances of the case and in law in not appreciating that the TPO has incorrectly considered and applied "Other Other Method" as the Most Appropriate Method without bringing on record any uncontrolled comparable companies while benchmarking deemed "Brand Promotion".
2.23. The NaFAC/DRP erred in facts and circumstances of the case and in law in not appreciating that the TPO has not provided any cogent reasons/basis for allocating 50% of the AMP expenses incurred by the Appellant to be recovered from the AE towards brand promotion.
2.24. The NaFAC/DRP failed to appreciate that the TPO has not provided the search parameters parameters based on which the comparable companies were selected by him.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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2.25. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the comparables selected by the TPO are functionally dissimilar as they are engaged in the business of advertisement advertisement and media whereas the Appellant is engaged only in the manufacture and sale of passenger cars and not brand promotion.
2.26. Without prejudice to the above, the NaFAC/DRP ought to have appreciated that the Appellant is not into core promotional/advertising promotional/adver activity and as such, if at all any adjustment is made for brand building activity, the same should be done after granting appropriate economic adjustments.
2.27. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the TPO ought to have restricted the adjustment to 50% of the AMP expenses incurred by the Appellant without adding any mark-up.
2.28. The NaFAC/DRP erred in confirming the action of the TPO in conducting a fresh search for identifying the comparable companies for the limited imited purpose of quantifying the mark-up mark up to be added to the 50% of AMP expenses (which was incorrectly considered to be incurred by the Appellant for the benefit of its AE).
2.29. Without prejudice to the above ground, the NaFAC/DRP ought to have appreciated ted that the TPO's action of allocating a mark-up mark of 10.04% on 50% of the AMP expenses is devoid of any merit and unsustainable in law as it is highly arbitrary and unreasonable.
2.30. Without prejudice to our above grounds, the NaFAC/DRP failed to appreciate ate that the TPO erred in reckoning sales promotion campaigns, auto shows, website development and ad films agency payments as AMP expenses while determining the adjustment for Brand Promotion.
2.31. Without prejudice to our above grounds, the NaFAC/DRP ought ou to have appreciated that the TPO failed to consider the submissions of the Appellant and also erred in not appreciating that the expenses relating to sales promotion campaigns, auto shows, website development and ad films agency payments are not in the nature of AMP expenses, as these expenses are not incurred for the purpose of advertisement but grouped under the head AMP expenses for better presentation and disclosure in the financial statements.
2.32. Without prejudice to the above, the NaFAC/DRP failed failed to take cognizance of the inconsistent stand by the TPO for the subject AY as compared to earlier AYs in relation to inclusion of certain non- non advertisement expenses under the head AMP while determining the adjustment for Brand Promotion.
2.33. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the TPO has erred in incorrectly computing the margins of the comparable companies in the TP order.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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CORPORATE TAX GROUNDS:
3. Investment Promotion Subsidy (IPS) received from Govt. of Tamil Nadu du in the form of refund of output SGST is a capital receipt not chargeable to tax 3.1 The DRP/NaFAC erred in treating the Investment Promotion Subsidy (IPS) in the form of Output SGST amounting to Rs.114,66,83,991 as income for the previous year relevant to the subject assessment year (AY) 2020-21.
20203.2 The DRP/NaFAC failed to appreciate that the IPS is a structured package of assistance granted for encouraging the setup of major automobile projects and boost the investment in the state of Tamil Nadu, in view ew of the various benefits accruing to the State.
3.3 The DRP/NaFAC ought to have appreciated that the Investment Promotion Subsidy granted by the Government of Tamil Nadu to the Appellant was for the purpose of setting up of Phase II manufacturing facility y and as such, the said subsidy should be treated as a 'capital receipt not chargeable to tax.
3.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. order issued by the Government Government of Tamil Nadu should be considered to determine the nature of IPS as revenue/ capital.
3.5 The DRP/NaFAC ought to have appreciated that factors like contribution to GDP of the State, enhancement of brand value of the city/state in which the investment investment is made, enhancement in employment potential etc. are key factors in determination of IPS as capital receipt since the IPS is provided not for running the business more profitably but in view of the benefits accruing to the State in the form of contribution ibution to the overall development of the State.
3.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non-taxable non taxable capital subsidies as it was introduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS).
3.7 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act is not a substantive amendment and no amendment is made in the charging provisions under section 28 of the Act.
3.8 The DRP/NaFAC ought to have appreciated that provisions of Section 2(24)(xviii) of the Act is not applicable for the IPS since the vested right to receive the subsidy was established on 17.04.2014 i.e., prior to 01.04.2016 and the vested rights cannot be taken away by a subsequent amendment.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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3.9 The DRP/NaFAC erred in not appreciating that even post amendment to the definition of income, income, the principle of "purpose test"
will have to be applied while determining the nature of subsidy.
3.10 The DRP/NaFAC failed to appreciate that once the nature of subsidy is held to be capital receipt not chargeable to tax, the character of the receipt and and its tax treatment shall not change in the subsequent years.
3.11 The NaFAC/DRP ought to have appreciated that the manner of utilization of a subsidy cannot determine its tax treatment.
Without prejudice to the objections that the Investment Promotion Subsidy bsidy in the form of Output SGST is capital in nature, our alternate objections are as under:
3.12 The DRP/NaFAC failed to appreciate that no amount of IPS in the form of refund of Output SGST was received by the Appellant during the subject AY.
3.13 The DRP/NaFAC RP/NaFAC ought to have appreciated that the receipt of subsidy is contingent upon approval by the Competent Authority sanctioning the subsidy, that all the conditions associated with the release of the subsidy are satisfied and not any time earlier.
3.14 The he DRP/NaFAC ought to have appreciated that the subsidy can be subject to tax only in the year in which it is actually received (i.e., (i FY 2020-21 21 relevant to AY 2021- 2021 22) as per section 145B(3) of the Act and hence, the same cannot be taxed in the subject AY.
4. Clean Energy Vehicle Subsidy (CEV subsidy) received from Govt. of Tamil Nadu is a capital receipt not chargeable to tax 4.1 The DRP/NaFAC erred in treating the CEV subsidy amounting to Rs. 25,00,00,000 as income for the previous year relevant to the subject assessment year (AY) 2020- 2020 21.
4.2 The DRP/NaFAC erred in not segregating the CEV subsidy amounting to Rs.25,00,00,000 from the Output SGST incentive while issuing the DRP Directions dated 03rd June 2024 and the final assessment order dated 23rd July July 2024, by brushing aside the additional evidence filed by the Appellant before the DRP.
4.3 The DRP/NaFAC ought to have appreciated that the CEV subsidy was granted by the Government of Tamil Nadu for the purpose of expansion of manufacturing facility for for production of clean energy vehicles.
4.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. order issued by the Government of Tamil Nadu should be considered to determine ne the nature of subsidy as revenue capital.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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4.5 The DRP/NaFAC failed to appreciate that the CEV subsidy is not provided for running the business more profitably but for promoting the manufacture of clean energy vehicles and making Tamil Nadu a global leader er in clean energy vehicle production.
4.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non-taxable non taxable capital subsidies as it was introduced troduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS).
4.7 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act iss not a substantive amendment and no amendment is made in the charging provisions under section 28 of the Act.
4.8 The DRP/NaFAC AC erred in not appreciating that even post amendment to the definition of income, the principle of "purpose test"
will have to be applied while determining the nature of subsidy.
Without prejudice to the objections that the CEV subsidy is capital in nature, our alternate objections are as under:
4.9 The DRP/NaFAC failed to appreciate that the Appellant did not receive any CEV subsidy subsid during the subject AY.
4.10 The DRP/NaFAC ought to have appreciated that the receipt of CEV subsidy is contingent upon approval by the Competent Authority sanctioning the subsidy that all the conditions associated with the release of the subsidy are satisfied sati and not any time earlier.
4.11 The DRP/NaFAC ought to have appreciated that the subsidy can be subject to tax only in the year in which it is actually received (i.e., FY 2021-22 22 relevant to AY 2022- 2022 23) as per section 145B(3) of the Act and cannot be taxed in the subject AY.
5. Disallowance of depreciation to the extent of capital subsidy 5.1 The NaFAC/DRP erred in disallowing depreciation amounting to Rs. 65,034 in the subject AY by considering the cash subsidy granted by SIPCOT in the FY 2001-02 2001 (AY 2002-03)
03) as a capital receipt to be adjusted against cost of assets.
5.2 The NaFAC/DRP ought to have appreciated that SIPCOT had given the subsidy for setting up the mega project and not for the purpose of meeting any liability towards acquisition of assets assets and as such, the subsidy is a capital receipt which cannot be adjusted against the cost of the asset.
5.3 The NaFAC/DRP failed to appreciate that in AY 2003-04, 2003 04, the Assessing Officer has accepted the Appellant's claim and deleted the disallowance of depreciation reciation based on the directions of the CIT(A) and IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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therefore, the question of disallowance of depreciation on subsidy in subsequent AY's does not arise.
5.4 The NaFAC/DRP ought to have followed the order of this Hon'ble Tribunal for AY 2006-07, 2006 AY 2013-14 to AY 2016-17, 17, wherein the impugned disallowance was directed to be deleted on the basis that the capital subsidy was a capital receipt.
6. Disallowance of expenditure under section 14A of the Act r.w.r 8D of the Rules
6.1 The NaFAC/DRP erred in disallowing disallowing a sum of Rs. 1,38,08,125 under section 14A of the Act by applying the provisions of Rule 8D of the Rules.
6.2 The NaFAC/DRP ought not to have made disallowance under section 14A of the Act when the Appellant has not earned dividend / any other exempt income come during the year.
6.3 The NaFAC/DRP ought to have appreciated that in the absence of any exempt income earned during the year, no expenditure can be attributed towards earning such notional income so alleged to have accrued.
6.4 The NaFAC, having acknowledged acknowledged the fact that the Appellant had sufficient surplus funds in earlier AY's to make the investments, ought not to have resorted to making adhoc disallowance under section 14A r.w.r 8D of the Rules.
6.5 The NaFAC erred in law in stating that disallowance disallowance under section 14A of the Act r.w.r. 8D of the Rules is mandatory without appreciating the fact that the application of Rule 8D is not mandatory/automatic.
6.6 The NaFAC/DRP ought to have appreciated that merely because there are investments (for strategic strategic purposes) and payment of interest (towards working capital), it cannot be assumed that the loan funds have been utilized for the purpose of making investments.
6.7 The NaFAC/DRP erred in presuming that the Appellant had incurred a portion of personnel expenses, expenses, rent, salaries, communication, travel, printing & stationery. interest, etc. debited to P&L. during the subject AY towards carrying out investment transactions/earning income from investments without appreciating that the nature of Appellant's investments estments (in wholly owned subsidiaries) does not require any continuous monitoring and as such the presumption of the NaFAC is misconceived.
6.8 The NaFAC/DRP ought to have appreciated that the Appellant had neither made fresh investments for strategic purposes purposes during the subject AY nor obtained any fresh loans during the subject AY and as such, the NaFAC's assumption that loan funds have been utilized for the purpose of making investments during the year is invalid.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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6.9 The NaFAC/DRP ought to have followed followed the order of this Hon'ble Tribunal for AY 2010-11 2010 to AY 2016-17, 17, wherein the disallowance under section 14A was directed to be restricted to the amount of exempt income.
6.10 Without prejudice to the above, the NaFAC ought to have considered only those investments investments which yielded dividend / any other exempt income and not the entire investments made for strategic purposes while computing the quantum of disallowance under Rule 8D of the Rules.
6.11 Without prejudice to the above, the NaFAC/DRP ought to have restricted the disallowance to 'Nil', since no dividend/any other exempt income was earned by the Appellant during the subject AY and as such, there is no requirement for any disallowance under section 14A of the Act.
7. Miscellaneous / Consequential grounds groun
7.1 The NaFAC erred in incorrectly computing interest to the extent of Rs.1,76,40,374 under the "total interest" line item under section 234A/234B/234C of the Act while determining the total tax and interest liability for the subject year.
8. The Appellant ant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra as also all consequential relief thereto.
9. The Appellant craves to add, alter, amend, substitute, rescind, modify and / or withdraw in any manner manner whatsoever all or any of the foregoing grounds at or before the hearing of appeal.
3. Before us, the Ld. AR placed on record, issue-wise issue wise chart and submitted that substantial issues have already been adjudicated by the Tribunal in their own case in IT(TP) IT(TP) No. 53/Chny/2022 for AY 2018-19.
2018Having heard rival submissions and upon perusal of case records, the appeal is disposed-off off as under.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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4. Ground No. 2 relates to the action of the lower authorities confirming the transfer pricing adjustment a of deemed Brand rand Development expenditure. From the facts placed on record, it is noted that, the t assessee aggregated all major international transactions and benchmarked the same using entity level Transactional Net Margin Method (TNMM). The same was accepted by Ld. TPO. However, the TPO proposed adjustment on account of expenses incurred by the assessee as for brand building allegedly incurred for the benefit of its AE and that this transaction was not reported by the assessee in Form 3CEB. The Ld. TPO is noted to have observed that, the assessee was manufacturing car under license from Hyundai Korea who was the owner of brand / trade mark / trade name "Hyundai".
"Hyundai". The assessee was permitted to use the said brand in terms of 'Technology and Royalty agreement' agreement dated 30.09.2002. In terms of said agreement, the assessee had no independent choice or discretion discretion to select or use any brand name of its choice. The assessee manufactured the cars with brand and logo of its AE and spent considerable amount for Advertising, Marketing and Promotion (AMP) expenditure which resulted into increase in brand value of its AE.
A According to TPO therefore, the assessee ought to havebeen compensated for the same on arm's length basis, as held by his predecessors in earlier assessment years. Accordingly, Ld. TPO proposed similar adjustment in this year and put the assessee to show sho cause IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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notice. Though the assessee assailed the same, TPO held that this transaction would be an international transaction within the meaning of Sec. 92B(1) which included the provision of services. The TPO further applied a different approach to ascertain ascertain the ALP pricing, which was in line with earlier AY 2018-19 19 in terms of which increase in brand value was computed to demonstrate the extent of benefits that accrued to the AE.
The adjustment was accordingly made as a percentage of AMP expenses actually incurred ncurred by the assessee which could be attributed to increase in brand value. Finally, 50% of AMP expenses with mark-
mark up of 10.04% was held to be TP adjustment which resulted into an adjustment of Rs.381.01 Rs.
Crores in the hands of the assessee. The Ld. DRP, following DRP directions for AY 2018-19 19 rejected the objections raised by the assessee.
Aggrieved, the assessee is now in appeal before us 4.1 Heard both the parties. As is evident from the orders of TPO and the Ld. DRP, this issue stood covered in assessee's assessee's favor in all the earlier years. We note that this Tribunal, in assessee's own case in IT(TP) No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 2018 19 following their earlier order in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17 2016 held as under: -
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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"3.3 3.3 As is evident from the orders of Ld. TPO itself, this issue stood covered in assessee's favor in all the earlier years. The bench, in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016- 2016-17 chose to follow earlier view of the Tribunal and held as under:
under -
7.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee's own case for the assessment year 2015 16 2015-16 in IT(TP) No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal No.10/CHNY/2020, following the earlier decision in assessee's own case for assessment year 2013-14 2013 14 in ITA No.3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adjustments adjustments towards brand services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment made made towards brand development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment.
Similar view has been taken in latest decision in IT(TP)A No.51/Chny/2021 dated 27.09.2023 for AY 2012-13. 13. Taking consistent view in the matter, we direct Ld. AO to delete impugned TP adjustment. The corresponding grounds raised by the assessee stand allowed."
allowed.
4.2 In absence of change in any facts or position of law, we follow the above ve decision (supra), and accordingly Ground No. 2 of the appeal stands allowed.
5. Ground Nos. 3 & 4 are against the action of the Ld. DRP upholding the AO's order treating the investment promotion subsidy ('IPS') and Clean Energy Vehicle ('SEV) Subsidy by way of income instead of capital receipt not liable to tax. The facts as noted are that, the assessee company has entered into a MOU with Government of Tamil Nadu on 22/01/2008 for setting up / Expansion of its manufacturing facility. As per IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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the said MOU, incentive was granted for the purpose of setting up of Phase II manufacturing facility by way of refund of Output VAT under the state policy. After the completion of the project on 31.03.2011, 31.03. a final eligibility certificate e was issued by SIPCOT on 17.04.2014 17.04.2014 and accordingly quantified the subsidy receivable in the form of IPS of Rs.4,023.36Crores.
Out of the said quantified subsidy, the assessee is noted to have received sum of Rs. 114.66 crores during the relevant year.
5.1 Further, in FY 2018-19, 2018 the assessee ssessee is noted to have entered into another MOU with Government of Tamil Nadu dated 24.01.2019 for a structured package of assistance for manufacturing clean energy vehicles being electric / hybrid vehicle, for which the assessee was given an assistance package of Rs.25 crores. It is noted that, both these subsidies were credited by way of 'Other Operating Revenue' in the Profit & Loss Account for the relevant FY 2019-20.
2019 20. According to the assessee, the object behind both these subsidies granted by the State State Government was for the purpose of setting up / expansion of manufacturing facility and as such,, it was claimed that the IPS& CEV subsidies should be treated as a capital receipt not chargeable to tax. The AO however did not accede to this claim of the assessee, ssessee, which was also accepted by the Ld. DRP.
Aggrieved, the assessee is now in appeal before us.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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5.2 Heard both the parties. It is noted that, the ascertainment of object / purpose of incentive ncentive or subsidy to determine whether it is capital or revenue in n nature, is no longer relevant as the position of law is noted to have has underwent change from AY 2016-17 2016 17 and onwards. It is observed that,in the Finance Act, 2015, 2015, the Legislature has amended the definition of 'income' by inserting clause (xviii) in section section 2(24), which read as under:-
"assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account for determination of actual cost of the asset in accordance with the provision of Explanation 10 to clause (1) of section 43."
5.3 It is noted that, under the above provision, subsidies, grants, cash incentives, duty drawback, waivers, concessions or reimbursements provided by the Central or State Governments either in cash or kind, will be included within the meaning of term "income" and consequently, consequ will be taxable under the Act. The genesis of above amendment can be traced trace back to judicial precedents in which capital subsidy (the benefit of subsidy being capital in nature) was held to be non-taxable.
non taxable. Through above-
above mentioned amendment, all types of subsidy, assistance, incentive received from the Government, irrespective capital or revenue in nature, has now become taxable. Prior to the above amendment, it is observed that, the Hon'ble Supreme Court had applied the "purpose test" to IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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determine whether ether a subsidy was a capital or revenue receipt. The Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd.
vs. CIT (228 228 ITR 253) 253 held that purpose or object of subsidy was relevant to decide the character of the incentive not the mechanism of payment and observed that, "If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account".. Similarly, Similarly in CIT Vs Ponni Sugars and Chemicals Limited (306 306 ITR 392), 392 it was held that,iff the subsidy's purpose was to help the assessee run the business more profitably or meet daily business expenses, it was considered a revenue receipt (and thus taxable).
Conversely, if the subsidy aimed at setting up a new unit or expanding an existing unit, it, it was deemed a capital receipt (and not taxable). The above amendment by the Finance Act, 2015, is noted to have altered the position of law and has made all subsidies,, irrespective of its object or purpose, to be taxable by way of 'income' unless it has been received towards the actual cost of an asset. We also note that, the constitutional validity of this amendment was challenged,, which is noted to have been already negated by the Hon'ble Bombay High Court in the case of Serum IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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Institute of India (P.) ) Ltd. Vs UOI (157 taxmann.com 107) wherein it was held as under:-
"41. Matters of economic policy should be best left to the wisdom of the legislature. In the context of a changed economic scenario the expertise of the people dealing with the subject should should not be lightly interfered with. While dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all. The case of petitioner certainly does not fall within thin this exception. We also do not find that by inserting the impugned sub clause there is any perversity or gross disparity resulting in clear or hostile discrimination.
42. As noted earlier it is trite that the legislature is the best forum to weigh different ferent problems in the fiscal domain and form policies to address the same including to create a new liability, exempt an existing liability, create a deduction or subject an existing deduction to new regulatory measures. In the very nature of taxing statutes, statutes, legislature holds the power to frame laws to plug in specific leakages.
The mere fact that the institution of tax by virtue of the impugned sub clause falls more heavily on petitioner cannot result in its invalidity.
43. In light of the above, in our view, the amendment to section2(24) by the insertion of sub-cause sub cause (xviii) of the Finance Act, 2015, is a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term. The submissions of petitioner though appear to be of fiscal concern were, in our view, more an argument of diminished profits and a narrow interpretation of income which the Apex Court has time and again expanded. The submissions submis of petitioner fall short of appreciating the overarching legislative intent to foster a comprehensive and equitable taxation regime. The amendment to Section2(24) by insertion of the impugned sub-clause sub clause that includes various subsidies and concessions only indicates the well established jurisprudential path ensuring that the income tax laws remain attuned to the economic realities and continue to serve as a vital cog in the nation's fiscal machinery. As submitted by ASG, it is the duty of the legislature legislatu to ensure that taxation policy reflects a balance between incentivizing economic activity and ensuring the equitable distribution of fiscal resources.
44. In our view, there is no merit in the petition. Petition dismissed."
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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5.4 It is observed that, the Hon'ble High Court has held that, the inclusion of various subsidies and concessions by sub-clause sub clause (xviii) in Section 2(24) i.e. the definition of income "indicates indicates a well-established well jurisprudential path ensuring that the income tax laws remain attuned to t the economic realities and continue to serve as a vital cog in the nation's fiscal machinery".
". It has accordingly,rejected the challenge to the constitutional validity of insertion of sub-cause cause (xviii) in the definition of income i.e. Section 2(24) by the the Finance Act, 2015 by holding the same as "a a perfect example of a legislative endeavour to align the definition of "income" with the evolving economic landscapes and judicial precedent of it being an inclusive and elastic term".It term was also held that the assessee has not been able to demonstrate a clear transgression of constitutional principles; and that having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, etc., for taxation.. The Hon'ble High Court accordingly affirmed theLegislature's 's act of overruling judicial precedents that distinguished capital receipts from revenue receipts and subsumed both under 'income' and subjecting them to taxation.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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5.5 We further observe that, this identical issue had come up for consideration before this Tribunal in assessee's own case in IT(TP)A No. 53/Chny/2022 dated 09.02.2024 for the assessment year 2018-19, 2018 and the subsidies were held to be taxable, in light of the amendment to Section 2(24)(xviii) by the Finance Act, 2015, by holding as under:
"12. Proceeding further, we find that the provisions of Sec.5 provide the scope of total income. It provides that subject to the provisions of this Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue or arise in India. The heads heads of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the purposes oses of charge of income-tax income tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words, words, once an item has been found to be covered within the meaning of 'income', the same shall have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of income is an inclusive one, it is not necessary as well as not practical that each item of income is clearly and distinctly spelt out in charging provisions of distinct heads of income. We also find that the provisions of Sec.28 specify the income which shall be chargeable to Income Tax under the heads 'Profits and Gains of business or Profession'. The sub-sub clause (i) provides that profits and gains of business or profession which was being carried on by the assessee at any time during the previous year shall be chargeable to tax under the head 'Profits and Gains of Business or Profession'. From the scheme of the Act, it could be seen that the definition of income as provided in Sec. 2(24)(xviii) is of widest amplitude and it is an inclusive definition and not an exhaustive definition. The scope of total income includes all types of income that is received or that accrues or arises to the assessee. The income has to be divided into five distinct heads one of which is 'Profits and Gains of Business or Profession'. In our considered opinion, opinion, when the definition of income is not exhaustive one, it is not necessary that to tax the income, corresponding amendment should have been made in Sec.28 of the Act.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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The argument that the amendment is not a substantive amendment is not correct and we do not concur with this argument.
13. It could also be observed that even before this amendment, the subsidy was not specifically spelt out in Sec.28 yet the subsidies which were of revenue in nature were always brought to tax under the head 'Profits and Gains Gains of Business or Profession' and capital receipts were held to be non-taxable taxable considering the 'purpose test' as laid down by Hon'ble Supreme Court in various case laws. The revenue subsidies were so brought to tax under the head 'Profits and Gains of Business Busin or Profession' on the reasoning that subsidies primarily arose to the assessee while conducting its business and the same was to be treated as per the provisions as applicable to computation of Income under the head 'Profits and Gains of Business or Profession'.
Profession'. The subsidies, in our opinion, in all such cases were covered under the provisions of Sec. 28
(i) itself i.e., the 'profits and gains of any business or profession which was carried on by the assessee at any time during the year'. This being the case, the logical conclusion that would follow would be that after amendment of the definition of 'income, there was no separate requirement of bringing corresponding amendment to Sec.28 since clause (i) was wide enough or in fact, was already governing the t treatment of such subsidies. Therefore, the argument of Ld. AR that there should be corresponding amendment in the charging provisions before an item could be brought to tax is not acceptable. These arguments stand rejected.
14. Upon perusal of amendment, amendment, we find that the effect of amendment made in Sec.2(24) by Finance Act 2015 w.e.f. 01.04.2016 by way of insertion of Clause (xviii) would be that income would include any assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43. The effect of the amendment, in our considered opinion, was that various concessions etc. provided by specified authorities either either in cash or in kind by whatever name called will be included within the meaning of term 'income' and consequently, the same would be taxable under the Act.
The phrase by whatever name called captures the essence of the amendment as brought out by the legislatures and the same in crystal clear terms expresses the intention of the legislatures. In our opinion, the distinction being hitherto created by judicial decisions between capital receipts and revenue receipts was done away by this amendment IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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and the earlier case laws holding the field would cease to apply after the amendment. The intention of legislature was to bring to tax all kinds of subsidies irrespective of their nature, manner of receipt and the agency from which it was received. The only exception exception provided is that in case the said concessions were taken into account to determine the actual cost of an asset in terms of Explanation 10 to clause (1) to Section 43, the same would not be separately taxable since in such a case, the quantum of depreciation depreciation would be reduced. In all the other cases, irrespective of nomenclature or the manner in which the same are given, such concessions would always form part of income of the assessee notwithstanding the 'purpose' or objective of the scheme or whether thehe same was in capital field or in revenue field. This amendment has, thus, taken away the distinction between capital receipts and revenue receipts or the 'purpose test' as laid down by Hon'ble Apex Court in various decisions. The amended definition provide provi that all sorts of assistance received by an assessee from the specified persons, irrespective of its nature as capital or revenue, shall be taxable as income of the assessee unless the same falls in the exclusion category. In such a situation, the relevant relevant case laws as cited by Ld. AR in support of the argument that 'purpose test' must be followed are to be disregarded and it was to be held that those case laws would have no application after the aforesaid amendment. We concur with the stand of Ld. CIT-DR, R, in this regard.
15. In view of the foregoing, the amount of subsidies as received by the assessee has rightly been brought to tax by Ld. AO in the assessment order. Ground No.6 and all its sub-grounds sub grounds as raised by the assessee, stand dismissed."
5.6 Before ore us, it was alternatively contended that the CEV subsidy had only accrued but was not received during the year and therefore could not be brought to tax in this year, but in subsequent year i.e. year of receipt.
Upon enquiry, the Ld. AR for the assessee was unable to confirm as to whether the impugned sum of Rs.25 crores, going by their own stand, had been offered to tax in the year of receipt of not. We also note that this particular argument was also raised before this Tribunal in their own case in IT(TP)A TP)A No. 53/Chny/2022 (supra), and has been rejected.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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5.7 Considering the above, above amendment to section 2(24)) of the Act and decision of this Tribunal (supra), we are of the view that both the IPS and CEV subsidieshave ieshave been rightly brought to tax by the AO.
AO Overall, therefore, Ground Nos. 3 & 4 of the appeal stands dismissed.
6. Ground No. 5 relates to disallowance of depreciation to the extent of Rs.65,034/- in relation to the cash subsidy. The facts as noted are that, the assessee had received in FY 2002-03 2002 of Rs.1,00,00,000/-
Rs.1,00,00,000/ which was claimed to be capital receipt. The AO had held the same to be adjustable against the cost of assets in terms of Explanation (10) to Section 43(1) of the Act and consequently disallowed depreciation thereon.
Consequentially, the he depreciation attributable to the relevant year i.e. Rs.65,034/- has been accordingly disallowed by the AO, which has been upheld by the Ld. DRP.
6.1 Assailing the action of lower authorities, the Ld. AR for the assessee has contended that the subsidy of Rs.1,00,00,000/- received in FY 2002- 2002 03 had been held by way of capital receipt not liable to tax and accordingly the disallowance of depreciation has been deleted in that year. The Ld. AR further submitted that, following the same, this Tribunal has deleted ted the disallowance of the cascading effect of depreciation in the subsequent years as well. He has therefore urged that the impugned disallowance ought to be deleted.
IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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6.2 Heard both the parties. We find that this issue is covered in favor of the assessee e by the orders of Tribunal in assessee's own cases for AYs 2013-14 to 2016-17.
17. In para 9.3 of the order in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17, 17, the Bench followed decision in earlier years and allowed this claim of the assessee.
Taking consistent nsistent view in the matter, this ground is therefore allowed.
7. Ground No. 6 is against the disallowance of Rs.1,38,08,125/-
Rs.1,38,08,125/ made under Section 14A read with Rule 8D. It is noted that, the assessee held considerable le investments during the year and thereforethe thereforethe AO had proposed disallowance u/s.14A of the Act.. The assessee had submitted that it did not receive any income from investments and therefore, there was no question of incurring any expenses and making impugned disallowance. However, rejecting the same, the AO computed disallowance under Rule 8D(2)(ii) at 1% of average investments and computed disallowance of Rs.1,38,08,125/-.
Rs.1,3 . The Ld. DRP confirmed the same. Aggrieved, the assessee is in further appeal before us.
7.1 We find that this issue stood stood covered by earlier decisions of the Tribunal wherein the disallowance has been restricted to the extent of exempt income earned by the assessee. Similar view has been expressed in IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018-19.
2018Taking consistentt view in the matter, we direct Ld. AO to restrict the IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd.
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disallowance to the extent of exempt income earned by the assessee. If no exempt income is earned, no such disallowance is called for. The corresponding grounds stand allowed for statistical purposes.
8. Ground No. 7 relates to levy of interest u/s 234A/234B/234C of the Act. This ground is found to be consequential in nature. The levy of interest is mandatory and thus, the AO is directed to levy the interest in accordance with law. This ground is therefore theref dismissed.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced on the 28th day of February, 2025,, in Chennai.
Sd/- Sd/
Sd/-
(अिमताभ शु
ा) (एबी टी.. वक )
(AMITABH SHUKLA) (ABY
ABY T. VARKEY)
VARKEY
लेखासद य/ACCOUNTANT MEMBER याियकसद य/JUDICIAL MEMBER
चे ई/Chennai,
दनांक/Dated: 28th February,
February 2025.
TLN
आदेशक ितिलिपअ ेिषत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF