M/s Le Passage to India Tours & Travels Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 2098/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2917 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Court: TRIBUNAL

Judgement Text

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/201 6 : ASSTT. YEAR : 2011 - 1 2 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD., E - 29, HAUZ KHAS, MAIN MARKET, NEW DELHI - 110016 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 15 (1), NEW DELHI - 110002 (APPELLANT) (RESPONDENT) PAN NO. AAACL8370K ASSESSEE BY : SH. AJAY VOHRA, SR. ADV. REVENUE BY : SH. SANJAY I. BARA, CIT DR DATE OF HEAR ING: 03 . 09 .201 9 DATE OF PRONOUNCEMENT: 04 .09 .201 9 ORDER PER DR. B. R. R. KUMAR , A CCOUNTANT M EMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15.02.2016 PASSED BY THE AO U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS 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 ) / TRANSFER PRICING OFFICER ( TPO ) / DISPUTE RESOLUTION PANEL ( D RP') IS ILLEGAL, UNJUST, BAD IN LAW AND HIGHLY EXCESSIVE. 1.2. T HE TPO & DRP FAILED TO CONSIDER THE FUNCTIONAL, AS SETS AND RISK PROFILE (FOR SHORT FAR ) OF THE ASSESSEE AND ITS INBOUND AND OUTBOUND TOURIST SERVICES ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 2 SEGMENTS AND ERRED ON FACTS AND IN LAW IN COMPARING THE ADVERTISEMENT & PUBLICITY AND BUSINESS PROMOTION EXPENSES (FOR SHORT AMP EXPENSES ) OF INBOUND AND OUTBOUND TOURIST SERVICES SEGMENT WITHOUT APPRECIATING THAT FAR OF THESE TWO SEGMENTS IS COMPLETELY DIFFERENT AND THEREBY, ERRED, IN MAKING ADDITION OF RS 83,49,428/ - AS DIFFERENCE IN A LP OF AMP EXPENSES. 1.3. THE TPO & DR P ERRED ON FACTS AND IN LAW, IN CHARACTERIZING AMP EXPENSES AS INTERNATIONAL TRANSACTION OF RENDITION OF BRAND PROMOTION SERVICES (FOR SHORT INTERNATIONAL TRA NSACTION ) BY ASSESSEE TO ITS AE. 1.4. THE TPO & DRP FAI LED TO CONSIDER THE SCOPE OF LICENSING AGREEMENT BETWEEN ASSESSEE AND ITS AE BY WHICH A MERE RIGHT TO USE BRAND NA ME TUI HAS BEEN GRANTED BY AE TO ASSESSEE IN CONSIDERATION OF LICENSING FEE OF RS 1,62,658/ - , AND THEREBY ERRED ON FACTS AND IN LAW IN ALLEG ING A FURTHER UNDERSTANDING BETWEEN THE ASSESSEE AND ITS AH REGARDING PROMOTING BRAND NAME. 1.5. THE TPO & DRP ERRED ON FACT S AND IN LAW, IN CHARACTERIZING AMP EXPENSES AS INTERNATIONAL TRANSACTION, IN THE ABSENCE OF ANY 'ARRANGEMENT OR 'UNDERSTANDING' O R ANY CONDUCT BY WHICH ASSESSEE AND ITS AES CAN BE SAID TO BE 'ACTING IN CONCERT' SO AS TO PROMOTE THE BRAND OF AE . 1.6. THE TPO & DRP FAILED TO APPRECIATE THAT ASSESSEE IS CARRYING ON BUSINESS AS FULL RISK BEARING ENT REPRENEUR AND IS INCURRING AMP E XPENS ES FOR ITS OWN BENEFIT AND NOT AT THE BEHEST OF AE, AND FURTHER FAILED TO CONSIDER THAT AN EXPENDITURE CANNOT BE DISALLOWED WHOLLY OR PARTLY BECAUSE IT INCIDENTALLY BENEFITS THE THIRD PARTY. 1.7. THE TPO & DRP FAILED TO APPRECIATE THAT DETERMINATION AS TO WHETHER AN EXPENDITURE IS REQUIRED TO BE INCURRED FOR THE PURPOSE OF BUSINESS IS DOMAIN OF ASSESSEE/BUSINESSMAN. 1.8. THE PURPORTED INFERENCE OF INTERNATIONAL TRANSACTION AND CONSEQUENT ADJUSTMENT OF EXCESSIVE ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 3 AMP EXPENSES BY COMPARING 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 ENSHRINED IN SEC 92A TO SEC 92F ON TRANSFER PRICING CONTAI NED IN CHAPT ER X OF THE INCOME T AX ACT. 1961 . 1.9. THAT METHOD ( BRIGHT LINE TEST ) 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 AS SESSEE IS THE ECONOMIC OWNER OF THE BRAND TUI IN INDIA AND THUS, EXPENSES INCURRED ON ADVERTISEMENT AND PROMOTION OF BRAND TUI. H AVE DIRECTLY BENEFITTED THE ASS ES S EE IN CREATION OF TURNOVER AND MARKET SHARE, AND FURTHER FAILED TO CONSIDER THAT AMP EXPENS ES INCURRED BY ASSESSEE ARE REVENUE EXPENSES, AND THAT THESE EXPENSES HAVE NOT RESULTED 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 THAN 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 RENDERED BY ASSESSEE AND THEREFORE OUGHT TO BE BENCHMARKED TOGETHER AND FURTHER FAILED TO APPRECIATE THAT OP/OC OF ASSESSEE FROM OUTBOUND TOURISTS SERVICES SEGMENT AFTER FACTORING AMP EXPENSES IS AT ARM S LENGTH. 1.13. WITHOUT PREJUDICE, THE TPO AND DRP ERRED ON F ACTS AND IN LAW, IN REJECTING THE SET OF 8 INDEPENDENT COMPARABLE COMPANIES, BY WHICH ASSESSEE SOUGHT TO SHOW THAT AM P, SALES OF ASSESSEE IS AT ARM'S LENGTH. 1.14. WITHOUT PREJUDICE, THE TPO AND DRP, FAILED TO APPRECIATE THAT COST OF OVERSEAS REPRESENTATIVES OF RS 2,07,53,557/ - OUGHT TO FORM PART OF AMP EXPENSES OF ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 4 INBOUND TOURIST SEGMENT, WHILE MAKING COMPARISON 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 EXPENSE S ALLEGED TO HAVE BEEN INCURRED FOR AND ON BEHALF OF AE . 1.16. WITHOUT PREJUDICE, THE DRP ERRED ON FACTS AND IN LAW, IN DIREC TING THE TPO TO TAKE AVERAGE GROSS PROFIT OF ASSESSEE AS MARK - UP ON AMP EXPENSES. 1.17. WITHOUT PREJUDICE, THE DRP FAILED TO EXCLUDE SELLING EXPENSES AND THUS ERRED IN MAKING AN OBSERVATION, THAT ALL EXPENSES ARE IN THE NATURE OF ADVERTISING EXPENSES AND FURTHER ERRED IN DELEGATING THE DETERMINATION OF CHARACTER OF SELLING EXPENSES TO TPO. CORPORATE TAX DISALLOWANCE 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 TREATING PAYMENTS AS '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 ESTABLISHM ENT OF THE NON - RESIDENT IN INDIA. 2.3 THAT THE EXPLANATIONS GIVEN, EVIDENCE PRODUCED AND MATERIAL PLACED AND MADE AVAILABLE ON RECORD HAVE NOT BEEN PROPERLY CONSIDERED AND JUDICIALLY INTERPRETED AND THE SAME DO NOT JUSTIFY THE ADDITION MADE. ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 5 3. THAT THE ADDITIONS MADE ARE BASED ON MERE SURMISES AND CONJUNCTURES AND THE 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 ABOV E GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 3. GROUND NOS. 1.1 TO 1.17 DEALS WITH AMP EXPENSES OF INBOUND AND OUTBOUND TOURIST SERVICES SEGMENTS. 4. ON T HE ISSUE OF OUTBOUND TOURIST SEGMENTS, IT WAS BROUGHT TO OUR NOTICE BY THE LD. AR , OF THE JUDGMENT OF THE CO - ORDINATE BENCH OF ITAT DELHI IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. THE RELEVANT PART OF THE ORDER DATED 19.07.2019 IS REPRODUCED FOR READY REFERENCE: 25. THE HON BLE DELHI HIGH COURT IN THE DECISIO NS OF MARUTI SUZUKI INDIA LTD., WHIRLPOOL (SUPRA) AND OTHERS HAVE RECOGNIZED THE FACT THAT AMP EXPENDITURE ARE INCURRED IN RESPECT TO THIRD PARTY COSTS INSOFAR AS THESE REPRESENT AMOUNTS PAID OR PAYABLE TO UNRELATED PARTIES (MEDIA HOUSES, ADVERTISING AGENC IES, MARKETING BODIES ETC.) AND CANNOT BE TREATED AS RELATED PARTY TRANSACTIONS MERELY BECAUSE SOME INCIDENTAL BENEFIT IS SAID TO ACCRUE TO THE ASSESSEE. IN THIS CONTEXT, THE COURT CITED THE SUPREME COURT DECISION OF E.D. SASSON (1954) 26 ITR 27 WHERE IT W AS 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 WAS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 26. THIS MEANS THAT INCOME/EXPENDITURE MUST ARISE QUA AN IN TERNATIONAL TRANSACTION MEANING THEREBY THAT THE INCOME HAS ACCRUED TO THE INDIAN TAX PAYER UNDER INTERNATIONAL TRANSACTIONS ENTERED INTO WITH AN ASSOCIATED ENTERPRISES OR EXPENDITURE PAYABLE BY THE INDIAN ENTERPRISES HAS ACCRUED/ARISING UNDER ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 6 INTERNATIONA L TRANSACTION WITH THE FOREIGN AE. THE SCHEME OF CHAPTER - X OF THE ACT IS NOT TO BENCHMARK TRANSACTIONS BETWEEN THE INDIAN ENTERPRISES AND UNRELATED THIRD PARTIES IN INDIA WHERE THERE IS NO INCOME ARISING TO THE INDIAN ENTERPRISES FROM THE FOREIGN PAYEE OR THERE IS NO PAYMENT OF EXPENSES BY THE INDIAN ENTERPRISES TO THE AE. CONVERSELY, THE TRANSFER PRICING PROVISIONS ENSHRINED IN CHAPTER - X OF THE ACT DO NOT SEEK TO BENCHMARK TRANSACTIONS BETWEEN TWO INDIAN ENTERPRISES. 27. A CAREFUL PERUSAL OF THE ORDER OF THE AUTHORITY BELOW, CLEARLY SHOWS THAT THE REVENUE IS GROSSLY FAILED IN BRINGING COGENT MATERIAL EVIDENCE ON RECORD TO DEMONSTRATE THAT THERE EXIST AN INTERNATIONAL TRANSACTION SO FAR AS OUTBOUND BUSINESS IS CONCERNED. 28. CONSIDERING THE FACTS OF THE CASE IN HAND IN TOTALITY IN THE LIGHT OF ADJUSTMENTS MADE BY THE TPO AS MENTIONED ELSEWHERE, WE ARE OF THE CONSIDERED VIEW THAT THERE EXIST NO INTERNATIONAL TRANSACTIONS AND THEREFORE, THERE WAS NO LIABILITY ON THE ASSESSEE TO REPORT THE SAME AS INTERNATIO NAL TRANSACTIONS. WE, ACCORDINGLY HOLD THAT AMP IN REGARD TO THE OUTBOUND BUSINESS DID NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AND THEREFORE THE ALP DETERMINED BY THE TPO IN BOTH YEARS IS DIRECTED TO BE DELETED. THE COMMON GRIEVANCE IS ALLOWED IN BOTH APPEALS. 5. SINCE, THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE CASE, WHICH COULD BE BROUGHT TO OUR KNOWLEDGE BY ANY OF THE PARTIES, FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE EARLIER YEARS, THE APPEAL OF THE ASSESSEE ON T HIS GROUND IS ALLOWED. 6. GROUND NOS. 2.1 TO 3 DEALS WITH O VERSEAS REPRESENTATION CHARGES/RETAINERSHIP FEE/REIMBURSEMENT OF EXPENSES TO OVERSEAS REPRESENTATIVES AND ADVERTISEMENT & PUBLICITY FEE. ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 7 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 I T 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 ADJUDICA TED , 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 T HIS 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 HAVELL S INDIA LTD. (2012) 21 TAXMAN 476 (DEL.). SINCE , THE ISSUE IS SIMILAR TO THE ISSUE DEAL T 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 REASONABL E 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 ITA NO . 2098 /DEL /2016 LE PASSAGE TO INDIA TOURS & TRAVELS PVT. LTD. 8 ASSESSING OFFICER TO EXAMINE THE ISSUE AFR ESH AND TAKE A DECISION IN ACCORDANCE WITH LAW . 9 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . (ORDER PRO N OUNC ED IN THE OPEN COURT ON 04 /0 9 /2019). SD/ - SD/ - ( SUDHANSHU SRIVASTAVA ) ( DR. B. R. R. KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04 /0 9 /2019 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR