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Showing contexts for: fii in Ubs Securities India P.Ltd, Mumbai vs Acit Cir 4(2), Mumbai on 16 March, 2021Matching Fragments
2.3.1 The Ld. counsel has categorically stated that the second ground in the cross-objection is not pressed. Having considered the above submission and facts of the case, the second ground in the cross-objection is dismissed as not pressed.
3. Briefly stated, the facts of the case are that the assessee filed its return of income for the AY 2003-04 on 28/11/2003 declaring total income of Rs.27,54,04,365/-. The assessee is a part of UBS group and is a securities broking company and was incorporated in India on 15/02/1996. The assessee is a leading broking house in India, servicing the needs of FIIs and domestic mutual funds. The assessee is an indirectly owned 100% subsidiary of UBS Switzerland and hence, all its transactions with the other group entities of the UBS fall under the category of international transactions. During the previous year 2002-03 relevant to the AY 2003-04, the assessee has entered into transactions with Swiss Finance Corporation and UBS AG long-term India investment fund. Both these entities are Foreign Institutional Investors (FIIs) based in Mauritius.
UBS Securities India Pvt.Ltd. 4 The main international transactions entered into by the assessee is on account of the brokerage charged by it on its group entities for the transactions undertaken by it on their behalf in India. For the purpose of benchmarking this transaction, the assessee has applied Transactional Net Margin Method (TNMM). Before the Transfer Pricing Officer (TPO), it was explained by the assessee that the services rendered by it to its group FII could be compared with the services rendered by it to non -group FII for whom it had undertaken similar trades. It was however explained that such rates have not been compared for the only reason that the assessee undertakes marketing function in respect of its transactions with unrelated parties, whereas for the purpose of its transactions with related parties it does not undertake any marketing function. The TPO observed that while applying TNMM, the assessee has compared profits earned by it with the profits earned by other entities operating in India, providing similar broking services. On the basis of the analysis undertaken by the assessee, it has identified 10 comparable companies, who have earned a net operating margin on cost of 15.75%. The assessee further contends that it has earned the margin of 153.76% on its operating costs, which is much higher than the margin earned by the comparable cases. Thus, it was contended before the TPO that the international transactions entered into by it with its group FII are at Arm's Length Price (ALP). The TPO rejected the TNMM applied by the assessee for the following reasons:-
5. Before us, the Ld. counsel for the assessee relies on the decision of the order of the Tribunal in the case of Morgan Stanley India Company Pvt. Ltd. (ITA No. 266/Mum/2006) and files the following chart :
UBS Securities India Pvt.Ltd. 7 Particulars Transfer CIT(A) Scenario 1 Scenario Scenario 3 Order Average of Volume Salary cost rates charged Discount of Research to third party Personnel FIIs & Domestic clients Cross Objection Cross Cross 1(a) Objection Objection 1(b) 1(c) Brokerage rate charged 0.28 0.28 0.28 0.28 0.28 by the Respondent to its AE Brokerage rate charged 0.39 0.39 0.34 0.35 0.39 by the Respondent to unrelated FIIs Less : Adjustment on account (0.04) (0.04) (0.04) (0.04) (0.04) of marketing function granted by TPO Less: Adjustment on account of salary cost of :
7.6 It is crystal clear that the assessee's transactions are with overseas FIIs and hence comparison with other overseas FIIs would alone be appropriate. The fact remains that domestic third party transactions are not UBS Securities India Pvt.Ltd. 17 comparable with the overseas FIIs on account of geographic differences. Thus the 1(a) of cross-objection is rejected.
8. Then we come to the issue regarding volume adjustments. We observe that though the assessee was specifically requested by the TPO vide office letter dated 17.01.2006 to explain how the brokerage rate was determined for its AE, no specific response was given; nor any evidence furnished to show that the AE was bound to give the assessee a minimum volume of business. A perusal of the documents filed before us clearly indicates that the assessee, while determining the rate charged individually in respect of the various third party FIIs has considered the weighted average rate, which takes into account the volumes. Further, as per the information collected by the TPO, which was also provided to the assessee, ABN Amro Asia Equity (India) Ltd. has charged an average brokerage rate of 0.40% in respect of clearing house trades of Rs.2831 crores with overseas FIIs. DSP Merrill Lynch Ltd. has charged a brokerage rate of 0.44% for clearing house trade of Rs.2103 crores with overseas FIIs. Thus significant volume of transactions were being undertaken at these rates in India between unrelated parties. In view of the above facts, the Ld. CIT(A) has rightly confirmed the negation of volume discount raised by the assessee. Thus the 1(b) of cross-objection is rejected.