Fujifilm Corporation India Branch Office, New Delhi V. ITO, New Delhi

ITA 5826/DEL/2011

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5475 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 27-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S S TOMAR S
• Keywords: Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Permanent establishment; Avoidance of tax
• Section: 143(3); 92D; 92B; 92F; 92A; 92E; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NOS.5826/DEL/2011 & 195/DEL/2013 ASSESSMENT YEARS : 2007-08 & 2008-09 FUJIFILM CORPORATION, INDIA BRANCH OFFICE, B-16, SECOND FLOOR, B-1, COMMUNITY CENTRE, JANAK PURI, NEW DELHI. PAN: AAACF9717A VS. INCOME TAX OFFICER, WARD 11(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA AND SHRI S.S. TOMAR , ADVOCATES & MS SUMISHA MURGAI, CA DEPARTMENT BY : SHRI KUMAR PRANAV, SR.DR DATE OF HEARING : 02.04.2018 DATE OF PRONOUNCEMENT : 04.04.2018 ORDER PER R.S. SYAL, VP: THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE AS SESSMENT YEARS 2007-08 AND 2008-09. SINCE SOME OF THE ISSUES RAISE D ARE COMMON, WE ARE, ITA NOS.5826 & 195/DEL/2013 2 THEREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2008-09 2. THIS APPEAL BY THE ASSESSEE ARISES OUT OF TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WIT H SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON 18.10.2012. 3. ONE OF THE ISSUES RAISED IN THIS APPEAL IS AG AINST THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN THE INTERNATIONAL TRANSACTION OF PROVISION OF MARKETING SUPPORT SERVICES. SUCCINCTLY, THE FA CTS OF THE CASE ARE THAT THE ASSESSEE IS A JAPANESE COMPANY (HEREINAFTER ALSO CA LLED `FUJIFILM). IT FILED RETURN DECLARING LOSS OF RS.6,14,06,692/- IN RESPE CT OF ITS OPERATIONS CARRIED OUT IN INDIA THROUGH AN INDIAN BRANCH. THE INDIAN BRANCH IS ENGAGED IN IMPORT AND RESALE OF FUJIFILM PRODUCTS IN INDIA AND PROVISION OF MARKETING AND TECHNICAL SUPPORT SERVICES TO ITS HEAD OFFICE, FUJIFILM. SEVEN INTERNATIONAL TRANSACTIONS INCLUDING `PROVISION OF MARKETING AND TECHNICAL SUPPORT SERVICES WERE REPORTED BY THE ASSESSEE IN FORM NO.3CEB. THE AO MADE REFERENCE TO THE TRANSFER PRICING OFFICER ( TPO) FOR DETERMINING ITA NOS.5826 & 195/DEL/2013 3 THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL T RANSACTIONS. TRANSACTED VALUE OF THE INTERNATIONAL TRANSACTION OF PROVISIO N OF MARKETING AND TECHNICAL SUPPORT SERVICES WAS SHOWN AT RS.3,65,54 ,360/-. THE TRANSACTIONAL NET MARGIN METHOD (TNMM) WAS EMPLOYED BY THE ASSESSEE WITH PROFIT LEVEL INDICATOR (PLI) OF OP/TC FOR DEM ONSTRATING THAT THIS INTERNATIONAL TRANSACTION WAS AT ALP. THE ASSESSEE DECLARED NET PROFIT MARGIN OF THIS TRANSACTION AT 7.50%. SIX COMPARABL ES WERE CHOSEN WITH THEIR MEAN MARGIN OF 5.17%. ON THIS BASIS, THE ASS ESSEE CLAIMED THAT ITS INTERNATIONAL TRANSACTION OF PROVISION OF MARKETIN G AND TECHNICAL SUPPORT SERVICES WAS AT ALP. THE TPO SELECTED 13 COMPARAB LE CASES AND ACCORDINGLY PROPOSED THE TRANSFER PRICING ADJUSTMEN T OF RS.47.05 LAC. THE ASSESSEE CHALLENGED SUCH COMPUTATION BEFORE THE DRP , WHICH DIRECTED TO EXCLUDE TWO COMPARABLES. THE TPO, GIVING EFFECT TO THE DIRECTIONS OF THE DRP, COMPUTED TRANSFER PRICING ADJUSTMENT IN THIS I NTERNATIONAL TRANSACTION AT RS.47,35,843/-, FOR WHICH THE ADDITION WAS MADE IN THE IMPUGNED ORDER. THE ASSESSEE IN THE PRESENT APPEAL IS AGGRIEVED SUC H ADDITION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THERE IS NO DISPUTE ON THE ITA NOS.5826 & 195/DEL/2013 4 TNMM, BEING THE MOST APPROPRIATE METHOD OR THE PLI. FURTHER, THE COMPUTATION OF THE ASSESSEES PLI IS ALSO NOT DISPU TED. THE ASSESSEE HAS CHALLENGED ONLY THE INCLUSION OF THE FOLLOWING THRE E COMPARABLES SELECTED BY THE TPO, NAMELY, APITCO LTD., CHOKSI LAB LTD. AN D WAPCOS LTD. 5. IN ORDER TO EXAMINE THE COMPARABILITY OR OTHER WISE OF THE ABOVE REFERRED THREE COMPANIES, IT IS SINE QUA NON TO FIRST COMPREHEND THE FUNCTIONAL PROFILE OF THE ASSESSEE UNDER THIS TRANS ACTION. IN THIS REGARD, IT IS RELEVANT TO NOTE THAT THE INDIAN BRANCH RENDERED MA RKETING AND TECHNICAL SUPPORT SERVICES TO FUJIFILM FOR DIRECT SALES MADE BY IT TO VARIOUS DISTRIBUTORS IN INDIA. FOR PROVIDING SUCH SERVICES , THE INDIAN BRANCH WAS REMUNERATED WITH COST PLUS 7.5% MARK UP. THIS POSI TION IS APPARENT FROM THE ASSESEES TRANSFER PRICING STUDY REPORT, WHOSE COPY IS AVAILABLE ON PAGE 849 OF THE PAPER BOOK. AS PER THIS DOCUMEN TATION, THE INDIAN BRANCH IS RESPONSIBLE FOR CUSTOMERS RELATIONS: CUSTOMER IDENTIFICATION PROVIDING PRODUCT INFORMATION TO CUSTOMERS; ITA NOS.5826 & 195/DEL/2013 5 RECEIVING ORDERS FROM CUSTOMERS AND FORWARDING TH EM TO THE ASSOCIATED ENTERPRISES FOR ACCEPTANCE; AND ADVISING THE ASSOCIATED ENTERPRISES OF ANY PRODUC T RELATED COMPLAINTS BY CUSTOMERS. TECHNICAL SUPPORT FDEL IS RESPONSIBLE FOR THE COORDINATION AND PROVIS ION OF TECHNICAL SUPPORT SERVICES FOR CUSTOMERS IN INDIA. MARKET RESEARCH FDEL IS ENGAGED IN PROVIDING MARKETING RESEARCH SER VICES ON MATTERS SPECIFICALLY REQUESTED FOR BY THE FUJIFILM, IN RELA TION TO THE INDIAN MARKET. IT PROVIDES THE FUJIFILM WITH THE GENERAL MARKET DA TA AVAILABLE TO IT, MARKET ANALYSIS, COMPETITIVE ANALYSIS, MARKET DRIVEN REQUE STS FOR NEW PRODUCTS AND MODIFICATION OF PRODUCTS. AFTER - SALES AND WARRANTY SERVICE FDEL PROVIDES AFTER-SALES AND WARRANTY SERVICES TO ITS CUSTOMERS IN INDIA. IT INCLUDES NORMAL SERVICING, HANDLING OF COMPLAINTS, TECHNICAL SUPPORT AND REPAIR SERVICES. IF THE SERVICE IS PROVIDED DURING THE WARRANTY PERIOD, FDEL DOES NOT CHARGE ITS CUSTOMERS FOR RENDERING THE AFT ER SALES SERVICE. 6. IT IS CLEAR FROM THE ABOVE THAT THE INDIAN BRA NCH PROVIDED CUSTOMER RELATIONS, TECHNICAL SUPPORT, MARKET RESEARCH AND A FTER-SALES AND WARRANTY SERVICES TO ITS HEAD OFFICE, FOR WHICH IT WAS COMPE NSATED AT ACTUAL COST INCURRED PLUS 7.5% MARK-UP. WITH THE ABOVE UNDERST ANDING OF THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO ITS HEAD OFFIC E, LET US EXAMINE THE THREE COMPANIES ASSAILED BEFORE US. ITA NOS.5826 & 195/DEL/2013 6 (I) APITCO LTD. 7. THIS COMPANY WAS SELECTED BY THE TPO AS COMP ARABLE. THE ASSESSEE CHALLENGED THE INCLUSION OF THIS COMPANY ON THE BAS IS OF DIFFERENT FUNCTIONAL PROFILE. UNCONVINCED, THE TPO INCLUDED I T IN THE FINAL TALLY. 8. WE HAVE ANALYZED THE ANNUAL REPORT OF THIS COM PANY, WHICH IS AVAILABLE AT PAGE 981 ONWARDS OF THE PAPER BOOK. FR OM THIS REPORT, IT CAN BE SEEN THAT ITS `INCOME FROM OPERATIONS STANDS AT RS.10,51,40,438/-, BREAK-UP OF WHICH HAS BEEN GIVEN IN SCHEDULE 11, AS UNDER:- INCOME FROM OPERATIONS MICRO ENTERPRISES DEVELOPMENT SKILL DEVELOPMENT ENTREPRENEURSHIP DEVELOPMENT RESEARCH STUDIES PROJECT RELATED SERVICES INFRASTRUCTURE PLANNING AND DEVELOPMENT ENVIRONMENT MANAGEMENT ENERGY RELATED SERVICES CLUSTER DEVELOPMENT TECHNOLOGY FACILITATION ASSET RECONSTRUCTION & MANAGEMENT SERVICES EMERGING AREAS 15,008,500 11,287,965 3,479,000 12,622,090 20,164,045 13,614,966 4,207,748 1,624,195 2,408,000 - 20,193,454 530,475 ___________ 105,140,438 ___________ 9. A CAREFUL PERUSAL OF THE OPERATIONS CARRIED O UT BY APITCO LIMITED DIVULGES THAT IT IS PROVIDING SERVICES IN THE NATU RE OF PROJECT MANAGEMENT ITA NOS.5826 & 195/DEL/2013 7 CONSULTING, FEASIBILITY STUDIES, MICRO ENTERPRISE D EVELOPMENT, SKILL DEVELOPMENT, ENVIRONMENT MANAGEMENT, ENERGY RELATED SERVICES, SOCIAL RESEARCH AND ASSET RECONSTRUCTION MANAGEMENT SERVIC ES. NO SEGMENT-WISE PROFITABILITY DATA OF THESE SERVICES IS AVAILABLE. THE TPO HAS CONSIDERED THIS COMPANY AS COMPARABLE ON ENTITY LEVEL. THE SERVICES RENDERED BY IT, TAKEN AS ONE UNIT, ARE DIFFERENT FROM WHAT THE ASSESEE IS DOING. WE FAIL TO APPRECIATE AS TO HOW ALL THE ABOVE LISTED SERVICES, TAKEN IN UNISON, CAN BE CONSIDERED AS COMPARABLE TO THE SERVICES PROVIDED B Y THE ASSESSEE, WHICH ARE RESTRICTED TO CUSTOMERS RELATIONS, TECHNICAL SU PPORT, MARKET RESEARCH AND AFTER-SALE & WARRANTY SERVICES. 10. THE LD. DR STRENUOUSLY ARGUED THAT ALL THE A CTIVITIES DONE BY THIS COMPANY ARE BASICALLY `BUSINESS SERVICES AND THE A SSESSEE IS ALSO RENDERING BUSINESS SERVICES ALONE. JUSTIFYING THE I NCLUSION OF THIS COMPANY, HE SUBMITTED THAT DIFFERENTIATION OF FUNCTIONS IN T HE OVERALL `BUSINESS SERVICES UMBRELLA IS TAKEN CARE OF UNDER THE TNMM. HE HARPED ON THE CONTENTION THAT THERE IS NO REQUIREMENT TO HAVE IDE NTICAL SERVICES FOR THE PURPOSE OF MAKING COMPARISON UNDER THE TNMM. ITA NOS.5826 & 195/DEL/2013 8 11. WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN VIE W OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAMPGREEN SALES PVT. LTD. VS. CIT (2015) 377 ITR 533 (DEL) IN WHICH IT HAS BEEN HELD THAT THE COMPARABLES SHOULD BE SELECTED ON THE BASIS OF SIM ILARITY EVEN UNDER THE TNMM. THE HONBLE HIGH COURT HAS LAID DOWN THAT SE LECTION OF COMPARABLES DOES NOT DIFFER WITH THE METHOD ADOPTED . EX CONSEQUENTI , IT IS NO MORE OPEN TO ARGUE THAT THE FUNCTIONAL DISSIMILA RITY OF THE COMPANIES UNDER THE OVERALL BROADER CATEGORY CAN BE IGNORED U NDER THE TNMM. IN VIEW OF THE FOREGOING DISCUSSION, WE FIND THE FUNCT IONAL SIMILARITY OF APITCO LIMITED LACKING ON ENTITY LEVEL WITH THE ASS ESSEE COMPANY. AS SUCH, WE ORDER FOR ITS EXCLUSION FROM THE FINAL SET OF CO MPARABLES. (II) CHOKSI LAB LTD . 12. THE TPO INCLUDED THIS COMPANY IN THE LIST O F COMPARABLES DESPITE THE ASSESSEES OBJECTION THAT IT WAS A COMMERCIAL TESTI NG HOUSE AND HENCE FUNCTIONALLY DIFFERENT. 13. WE HAVE GONE THROUGH THE ANNUAL REPORT OF TH IS COMPANY, WHICH IS AVAILABLE IN THE PAPER BOOK. NOTE NO. 8 TO PART B - NOTES FORMING PART OF ITA NOS.5826 & 195/DEL/2013 9 THE ACCOUNTS - PROVIDES THAT THIS COMPANY IS A COM MERCIAL TESTING HOUSE ENGAGED IN TESTING OF VARIOUS PRODUCTS AND ALSO OFF ERS SERVICES IN THE FIELD OF POLLUTION CONTROL AS ALLIED ACTIVITY. FROM THE A BOVE DESCRIPTION OF THE NATURE OF SERVICES CARRIED ON BY THIS COMPANY, IT B ECOMES EVIDENT THAT IT IS BASICALLY ENGAGED IN PROVIDING TESTING SERVICES FOR VARIOUS PRODUCTS AND ALSO OFFERS SERVICES IN THE FIELD OF POLLUTION CONT ROL. AS AGAINST THIS, THE SERVICES PROVIDED BY THE ASSESSEE ARE PURELY IN THE NATURE OF MARKETING SUPPORT TO ITS AES. WE FAIL TO APPRECIATE AS TO HO W MARKETING SUPPORT SERVICES CAN BE EQUATED WITH TESTING SERVICES. BY NO STANDARD, THIS COMPANY CAN BE CONSIDERED AS COMPARABLE WITH THE AS SESSEE COMPANY. WE, THEREFORE, DIRECT THE EXCLUSION OF THIS COMPANY FROM THE LIST OF COMPARABLES. (III) WAPCOS LTD. (SEG.) 14. THE TPO CONSIDERED THIS COMPANY AS COMPARABLE . THE ASSESSEES OBJECTION ABOUT THE FUNCTIONAL DISSIMILARITY, WERE REJECTED. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM THE ANNUAL REPORT OF THIS COMPANY THAT IT ITA NOS.5826 & 195/DEL/2013 10 HAS TWO ITEMS OF INCOME, NAMELY, CONSULTANCY AND C ONTRACT INCOME AND OTHER MISC. INCOME. THE TPO HAS TAKEN CONSULTAN CY AND CONTACT SEGMENT FOR THE PURPOSES OF COMPARISON WITH THE ASS ESSEE COMPANY. THIS COMPANY WAS AWARDED PROJECT OF EMERGENCY TRANSPORT AND INFRASTRUCTURE DEVELOPMENT BY AN INDIAN PSU IN SUDAN. IN ADDITION, IT WAS ALSO GIVEN PROJECTS OF DEVELOPMENT AND HYGIENE EDUCATION DEVEL OPMENT BY DRY PIT LATRINES, STUNG TASAL WATER RESOURCES DEVELOPMENT P ROJECTS, CAMBODIA, PROJECT OF TRANSMISSION LINE FROM KARTIE TO STA-TRE NG, CAMBODIA. ON A REVIEW OF THE ABOVE PROJECTS UNDERTAKEN BY THIS COM PANY, IT CAN BE EASILY ASCERTAINED THAT IT IS NOWHERE CLOSE TO THE RENDERI NG OF MARKETING SUPPORT SERVICES, WHICH IS BEING DONE BY THE INDIAN BRANCH UNDER THIS INTERNATIONAL TRANSACTION. WE, THEREFORE, DIRECT TO EXCLUDE WAPC OS LTD. (SEG.) FROM THE LIST OF COMPARABLES. 16. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAI NST THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN AMP (ADVERTISEMEN T, MARKETING AND PROMOTION) EXPENSES AMOUNTING TO RS.1,28,11,130/-. DURING THE COURSE OF PROCEEDINGS, THE TPO OBSERVED THAT THE INDIAN BRANC H PROMOTED THE BRAND NAME OF FUJI IN INDIA FOR WHICH HUGE EXPENDITURE WAS INCURRED. ITA NOS.5826 & 195/DEL/2013 11 CONSIDERING AMP EXPENSES AS A SEPARATE INTERNATIONA L TRANSACTION OF RENDERING SERVICES BY THE INDIAN BRANCH TO THE HEAD OFFICE, THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT, BY APPLYING T HE BRIGHT LINE TEST. THE ASSESSEE CHALLENGED SUCH ADDITION IN THE DRAFT ORDE R BEFORE THE DISPUTE RESOLUTION PANEL (DRP), BUT WITHOUT ANY SUCCESS. TH E ASSESSING OFFICER, IN THE FINAL ASSESSMENT ORDER, MADE ADDITION ON THIS S CORE, WHICH HAS BEEN ASSAILED BEFORE THE TRIBUNAL. 17. BEFORE TAKING UP THE ISSUE OF TRANSFER PRICI NG ADDITION OF AMP EXPENSES, IT IS RELEVANT TO MENTION THAT THE ASSESS EE, IN THIS CONTEXT, HAS TAKEN THE FOLLOWING TWO ADDITIONAL GROUNDS, READING AS UNDER : - (I) THAT THE ASSESSING OFFICER (AO)/ DISPUTE RESOLUTION PANEL (DRP)/ TRANSFER PRICING OFFICER (TPO) ERRED, IN LAW AND ON FACTS, IN NOT APPRECIATING THE FACT THAT THE APPELLANT BEING A BR ANCH, IS JUST AN EXTENSION OF ITS HEAD OFFICE FUJIFILM CORPORATION, JAPAN (FFHO) IN INDIA, THEREFORE, THERE COULD NOT HAVE BEEN(A) ANY RENDITION OF BRAND BUILDING SERVICES TO OWN; (B) COULD NOT BE HELD AME NABLE TO TRANSFER PRICING PROVISIONS AND THUS LIABLE TO TRANSFER PRIC E ADJUSTMENT. (II) WITHOUT PREJUDICE, THE AO/ DRP/ TPO ERRED, IN LAW A ND ON FACTS, IN NOT APPRECIATING THAT THE ADVERTISEMENT, MARKETING AND PROMOTION EXPENDITURE (AMP) ARE GENERAL ADMINISTRATIVE EXPENSES AND THE APPELLANT, BEING A PERMANENT ESTABLISHMENT (PE) OF FFHO IN INDIA, IS ENTITLED FOR CLAIMING DEDUCTION OF ALL EXPENSES INCURRED BY THE APPELLANT, INCLUDING EXECUTIVE AND GENERAL ADMINIST RATIVE EXPENSES SO INCURRED, WHETHER IN INDIA OR ELSEWHERE, UNDER ARTI CLE 7(3) OF INDIA- JAPAN DOUBLE TAX AVOIDANCE AGREEMENTS (DTAA). ITA NOS.5826 & 195/DEL/2013 12 18. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RE LEVANT MATERIAL ON RECORD. SINCE BOTH THE ADDITIONAL GROUNDS DEAL WITH LEGAL ISSUES AND DO NOT REQUIRE ANY FRESH ADJUDICATION OF FACTS, WE, THEREF ORE, ADMIT THE SAME FOR DISPOSAL ON MERITS. 19. WE ESPOUSE THE FIRST ADDITIONAL GROUND, THRO UGH WHICH THE ASSESSEE HAS CHALLENGED THAT IT, BEING A BRANCH OFFICE, IS J UST AN EXTENSION OF ITS HEAD OFFICE, FUJIFILM CORPORATION, JAPAN, IN INDIA AND, HENCE, THERE CAN BE NO TRANSACTION INCLUDING RENDITION OF ANY SERVICE, MUC H LESS THE BRAND BUILDING SERVICE TO SELF AND CONSEQUENTLY, THE TRANSFER PRIC ING PROVISIONS CANNOT BE APPLIED INSOFAR AS TRANSACTIONS BETWEEN THE HEAD OF FICE AND BRANCH OFFICE ARE CONCERNED. IT CAN BE SEEN THAT THIS ADDITIONAL GROUND HAS TWO FACETS, VIZ., FIRST, THAT NO TRANSFER PRICING PROVISIONS CA N APPLY TO TRANSACTIONS BETWEEN THE HEAD OFFICE AND BRANCH OFFICE AND SECON D, THERE CAN BE NO TRANSACTION WITH SELF. 20. WE TAKE UP THE FIRST FACET FOR CONSIDERATION . SECTION 92 OF THE ACT, WHICH IS THE FIRST SECTION OF CHAPTER-X OF THE ACT WITH THE CAPTION SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX, PROVIDES THROUGH SUB-SECTION (1) ITA NOS.5826 & 195/DEL/2013 13 THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANS ACTION SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SECTION 92 B DEFINES INTERNATIONAL TRANSACTION. SUB-SECTION (1) OF SECTION 92B STATES THAT AN INTERNATIONAL TRANSACTION MEANS: A TRANSACTION BETWEEN TWO OR MO RE ASSOCIATED ENTERPRISES, ... SECTION 92A GIVES MEANING OF ASSOCIATED ENTERPRISE. SUB-SECTION (1) OF THIS STIPULATES THAT : `FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92B, 92C, 92D, 92E AND 92F, 'ASSOCIATE D ENTERPRISE', IN RELATION TO ANOTHER ENTERPRISE, MEANS AN ENTERPRISE WHICH FALLS WITHIN ANY OF THE SUB-CLAUSES (A) OR (B) OF SUB-SECTION (1) RE AD WITH SUB-SECTION (2) OF SECTION 92A. A CONJOINT READING OF SECTIONS 92A AND 92B CLEARLY TRANSPIRES THAT THE SUM AND SUBSTANCE OF AN `INTERNATIONAL TRA NSACTION IS THAT IT IS A TRANSACTION BETWEEN TWO `ENTERPRISES. SECTION 92F CONTAINS DEFINITIONS OF CERTAIN TERMS RELEVANT TO COMPUTATION OF ALP. CLAU SE (III) OF THIS SECTION POSTULATES THAT, FOR THE PURPOSE OF SECTION 92, 92A , 92B, 92C, 92D AND 92E, :` 'ENTERPRISE' MEANS A PERSON (INCLUDING A PERMANE NT ESTABLISHMENT OF SUCH PERSON) WHO IS, OR HAS BEEN ENGAGED IN THE PR OVISION OF SERVICES OF ANY KIND.... ON GOING THROUGH THE ABOVE PROVISIONS , IT BECOMES EVIDENT THAT A PERMANENT ESTABLISHMENT IS ALSO AN ENTERPRISE F OR THE PURPOSES OF THE ITA NOS.5826 & 195/DEL/2013 14 TRANSFER PRICING PROVISIONS AND HENCE ANY TRANSACTI ON BETWEEN TWO ENTERPRISES, NAMELY, THE FOREIGN ENTERPRISE AND ITS PERMANENT ESTABLISHMENT IN INDIA, IS ALSO SUBJECT TO THE TRANSFER PRICING R EGULATIONS. IN FACT, THE ASSESSEE ITSELF REPORTED 7 INTERNATIONAL TRANSACTIO NS BETWEEN THE HEAD OFFICE AND THE BRANCH OFFICE, WHICH HAVE BEEN REPRODUCED O N PAGE 3 OF THE ORDER OF THE TPO. NOT ONLY THAT, THE ASSESSEE ITSELF DETE RMINED THEIR ALP BY APPLYING THE MOST APPROPRIATE METHODS, SUCH AS, RPM OR CUP METHOD OR TNMM TO DEMONSTRATE THAT THEY WERE AT ALP. 21. THE DELHI BENCH OF THE TRIBUNAL IN AITHENT TECHNOLOGIES PVT. LTD. VS. DCIT (2015) 155 ITD 0266 (DELHI) (AUTHORED BY THE V.P. IN THE INSTANT CASE) AND SOME OTHER CASES OF THE SAME ASSESSEE DEA LT WITH A SITUATION IN WHICH THE ASSESSEE THEREIN WAS AN INDIAN RESIDENT H AVING BRANCH OFFICE IN CANADA. SOME TRANSACTIONS TOOK PLACE BETWEEN THE HE AD OFFICE IN INDIA AND BRANCH OFFICE IN CANADA. THE QUESTION AROSE OF THE DETERMINATION OF THE ALP OF SUCH TRANSACTIONS. THE DELHI BENCH HELD THAT NO TRANSFER PRICING ADJUSTMENT CAN BE CONTEMPLATED ON ACCOUNT OF TRANSA CTIONS BETWEEN THE HEAD OFFICE AND BRANCH AS THESE ARE TRANSACTIONS WI TH THE SELF AND NOT INTERNATIONAL TRANSACTIONS. APART FROM THE FACT THA T THE ATTENTION OF THE ITA NOS.5826 & 195/DEL/2013 15 BENCH WAS NOT DRAWN TOWARDS SECTION 92F(III) OF THE ACT, WHAT IS FURTHER MATERIAL TO NOTE IS THAT IN THAT CASE THE ASSESSEE WAS AN INDIAN RESIDENT, WHOSE `WORLD INCOME WAS CHARGEABLE TO TAX, IRRESPE CTIVE OF WHETHER THE INCOME WAS SHIFTED TO CANADA OR RETAINED IN INDIA. THE TRANSACTIONS IN THAT CASE, WERE, NATURALLY, TAX NEUTRAL. THE BENCH FURTH ER NOTED THAT EVEN IF THE HEAD OFFICE EARNED PROFIT FROM ITS BRANCH OFFICE, T HEN SUCH PROFIT EARNED WOULD CONSTITUTE ADDITIONAL COST OF THE BRANCH OFFI CE. ON AGGREGATION OF THE ACCOUNTS OF THE HEAD OFFICE AND BRANCH OFFICE, SUCH INCOME OF THE HO WOULD BE SET OFF WITH THE EQUAL AMOUNT OF EXPENSE O F THE BO, LEAVING THEREBY NO SEPARATELY IDENTIFIABLE INCOME ON ACCOUN T OF THE TRANSACTION. DISCUSSION MADE IN THAT CASE ABOUT THERE BEING NO C OMMERCIAL OR INTERNATIONAL TRANSACTION ON ACCOUNT OF DEALINGS WI TH THE INDIAN HEAD OFFICE AND THE BRANCH OFFICE IN CANADA SHOULD BE SEEN IN T HAT HUE ONLY. BE THAT AS IT MAY, TECHNICALLY, THE APPLICABILITY OF THE TRANS FER PRICING PROVISIONS EVEN IN SUCH CASES CANNOT BE RULED OUT. UNLIKE THAT CASE , THE ASSESSEE IN THE INSTANT CASE IS A NON-RESIDENT, WHOSE INCOME FROM I NDIAN OPERATIONS ALONE IS CHARGEABLE TO TAX IN INDIA. THERE IS NO QUESTION OF MERGER OF THE ACCOUNTS OF THE HEAD OFFICE AND BRANCH OFFICE FOR COMPUTING TOTAL INCOME OF THE NON- ITA NOS.5826 & 195/DEL/2013 16 RESIDENT CHARGEABLE TO TAX IN INDIA. THE TRANSACTIO NS BETWEEN THE HEAD OFFICE AND THE INDIAN BRANCH ARE NOT TAX NEUTRAL. IF TRANS ACTIONS BETWEEN THE FOREIGN HEAD OFFICE AND THE INDIAN BRANCH OFFICE AR E NOT AT ALP, IT IS CERTAINLY GOING TO AFFECT THE INCOME OF THE NON-RES IDENT ASSESSEE CHARGEABLE TO TAX IN INDIA, WHICH DEFINITELY REQUIRES THE DETE RMINATION OF THE ALP OF SUCH TRANSACTIONS. THUS, THE VIEW CANVASSED BY THE LD. AR THAT SINCE THE INDIAN BRANCH OFFICE IS A PART OF THE JAPANESE ENTE RPRISE AND, HENCE THERE CAN BE NO APPLICABILITY OF TRANSFER PRICING PROVISI ONS, IS DEVOID OF MERITS AND THE SAME IS HEREBY REPELLED. 22. NOW COMES THE SECOND FACET. THE LD. AR RELIE D ON THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN SIR KIKABHAI PREMCHAND VS. CIT (1953) 24 ITR 506 (SC) LAYING DOWN THAT A PERSON CANNOT TRANSACT WITH SELF. DRAWING SUPPORT FROM THIS JUDGMENT, IT WAS C ONTENDED THAT THERE CAN BE NO TRANSACTION BETWEEN A HEAD OFFICE IN A FOREIG N COUNTRY AND ITS BRANCH OFFICE IN INDIA. THERE IS NO DISPUTE ON THE PROPOS ITION OF LAW EXPOUNDED IN THIS JUDGMENT THAT A PERSON CANNOT TRANSACT WITH SE LF. HOWEVER, THE FACTS IN THE INSTANT CASE ARE DIFFERENT. THE ASSESSEE IN QUE STION IS A NON-RESIDENT JAPANESE COMPANY, WHICH BY VIRTUE OF SECTIONS 4 AND 5 IS LIABLE TO TAX IN ITA NOS.5826 & 195/DEL/2013 17 RESPECT OF ITS TOTAL INCOME FROM WHATEVER SOURCE DE RIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SU CH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEME D TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. SECTION 9 OF THE ACT PR ESCRIBES THE INSTANCES OF: `INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. THUS A NON-RESIDENT ASSESSEE IS ALSO CHARGEABLE TO TAX IN RESPECT OF ITS INCOME ACC RUING OR ARISING OR DEEMED TO BE ACCRUING OR ARISING IN INDIA. SECTION 9(1) PROVIDES, INTER ALIA, THAT ALL INCOME ACCRUING OR ARISING, WHETHER DIRECT LY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. A NON-RESIDENT ASSESSEE IS, THEREFORE, LI ABLE TO TAX IN RESPECT OF INCOME DEEMED TO BE ACCRUING OR ARISING TO HIM IN I NDIA. THE FACTUAL MATRIX DIVULGES THAT THE ASSESSEE IS CARRYING ON ITS BUSIN ESS IN INDIA THROUGH ITS BRANCH OFFICE. CARRYING ON BUSINESS IN INDIA THROUG H A BRANCH OFFICE CONSTITUTES A `BUSINESS CONNECTION OF THE NON-RESI DENT ASSESSEE IN INDIA. SUCH INCOME IS CHARGEABLE TO TAX AS PER THE PROVISI ONS OF SECTION 4 AND 5 READ WITH SECTION 9 OF THE ACT. JUDGMENT OF THE HON BLE SUPREME COURT RELIED BY THE LD. AR IN CIT VS. HYUNDAI HEAVY INDUSTRIES LTD. (2007) 291 ITR 482 (SC) ALSO CLEARLY LAYS DOWN IN PARA 7 THAT : `AN INCOME WHICH ITA NOS.5826 & 195/DEL/2013 18 ACCRUES OR ARISES TO A FOREIGN ENTERPRISE IN INDIA CAN BE ONLY SUCH PORTION OF INCOME ACCRUING OR ARISING TO SUCH A FOREIGN ENTERP RISE AS IS ATTRIBUTABLE TO ITS BUSINESS CARRIED OUT IN INDIA. THIS BUSINESS CO ULD BE CARRIED OUT THROUGH ITS BRANCH(S) OR THROUGH SOME OTHER FORM OF ITS PRE SENCE IN INDIA SUCH AS OFFICE, PROJECT SITE, FACTORY, SALES OUTLET ETC. (H EREINAFTER CALLED AS 'PE OF FOREIGN ENTERPRISE'). THEREFORE, SINCE THERE IS NO SPECIFIC PROVISION UNDER THE ACT TO COMPUTE PROFITS ACCRUING IN INDIA IN THE HANDS OF THE FOREIGN ENTITIES, THE PROFITS ATTRIBUTABLE TO THE I NDIAN PE OF FOREIGN ENTERPRISE ARE REQUIRED TO BE COMPUTED UNDER NORMAL ACCOUNTING PRINCIPLES AND IN TERMS OF THE GENERAL PROVISIONS OF THE IT AC T. THEREFORE, ASCERTAINMENT OF A FOREIGN ENTERPRISES TAXABLE BUS INESS PROFITS IN INDIA INVOLVES AN ARTIFICIAL DIVISION BETWEEN PROFITS EAR NED IN INDIA AND PROFITS EARNED OUTSIDE INDIA. IT IS, THEREFORE, OVERT THAT THE ASSESSEE IN THE INSTANT CASE IS CHARGEABLE TO TAX IN INDIA UNDER THE PROVIS IONS OF THE ACT IN RESPECT OF INCOME EARNED FROM THE BUSINESS CONNECTION IN IN DIA, WHICH IS THROUGH ITS BRANCH OFFICE. 23. SIMILAR IS THE POSITION UNDER THE INDIA-JAPA N DOUBLE TAX AVOIDANCE AGREEMENT (HEREINAFTER ALSO CALLED THE DTAA). PA RA 1 OF ARTICLE 7 OF THE ITA NOS.5826 & 195/DEL/2013 19 DTAA PROVIDES THAT : ` THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE UNL ESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE C ARRIES ON BUSINESS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY BE TAX ED IN THAT OTHER CONTRACTING STATE BUT ONLY SO MUCH OF THEM AS IS DI RECTLY OR INDIRECTLY ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. INDI A BRANCH OFFICE ADMITTEDLY CONSTITUTES THE PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA IN TERMS OF ARTICLE 5 OF THE DTAA. THUS IT IS AXIOM ATIC THAT INCOME OF THE JAPANESE ASSESSEE, AS IS RELATABLE TO THE OPERATION S CARRIED OUT IN INDIA THROUGH ITS BRANCH OFFICE, IS CHARGEABLE TO TAX IN INDIA NOT ONLY UNDER THE ACT BUT ALSO UNDER THE DTAA. 24. AGAIN REVERTING TO THE ARGUMENT OF THE LD. A R ABOUT THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY AND THE CONSEQUENTIAL NO ACCRUING OR ARISING OF INCOME, WE FIND THAT THE SAME IS NOT THE CASE HERE. THE ASSESSEE IS CHARGEABLE TO TAX IN INDIA IN RESPECT OF ITS INCOME EARNED THROUGH ITS BRANCH OFFICE IN INDIA FROM BUSINESS CONNECTION/PERMANENT ESTABLISHMENT BOTH UNDER THE ACT/DTAA. THERE IS NO APPLICABILITY OF T HE PRINCIPLE OF ITA NOS.5826 & 195/DEL/2013 20 MUTUALITY INSOFAR AS INCOME FROM THE OPERATIONS OF THE BRANCH OFFICE WITH OUTSIDERS ARE CONCERNED. WE HAVE NOTICED ABOVE THAT ALL THE TRANSACTIONS BETWEEN THE H.O. ABROAD AND THE B.O. IN INDIA, EVEN THOUGH MUTUAL, BUT ARE REQUIRED TO BE DONE AT ARMS LENGTH PRICE IN TE RMS OF CHAPTER X OF THE ACT, SO THAT CORRECT AMOUNT OF INCOME ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA IS ASCERTAINED. SUBJECTING AN INTERNAT IONAL TRANSACTION BETWEEN A H.O. ABROAD AND A B.O. IN INDIA TO THE TRANSFER PRICING PROVISIONS DOES NOT IN ANY MANNER VITIATES THE RULE OF MUTUALITY, A S HAS BEEN PUT FORTH ON BEHALF OF THE ASSESSEE. IN FACT, BOTH THE THINGS CO -EXIST. TRANSFER PRICING PROVISIONS ASSIST IN COMPUTING CORRECT AMOUNT OF TO TAL INCOME OF A NON- RESIDENT CHARGEABLE TO TAX IN INDIA. IT IS NOTICED THAT THE DEPARTMENT HAS MADE OUT A CASE THAT BY INCURRING AMP EXPENSES, THE INDIAN BRANCH HAS RENDERED A BRAND BUILDING SERVICE TO ITS HEAD OFFIC E WITHOUT CHARGING ANY CONSIDERATION, WHICH OUGHT TO HAVE BEEN CHARGED AND THEN OFFERED AS INCOME TO TAX IN INDIA. DETERMINATION OF ALP OF TH E INTERNATIONAL TRANSACTION IS AN ATTEMPT TO FIND OUT THE AMOUNT WH ICH THE BRANCH OFFICE SHOULD HAVE CHARGED AND OFFERED FOR TAXATION IN IND IA. IN EARLIER PARAS, WE HAVE DEALT WITH THE TRANSFER PRICING ADDITION CHALL ENGED BY THE ASSESSEE IN ITA NOS.5826 & 195/DEL/2013 21 THE INTERNATIONAL TRANSACTION OF `PROVISION OF MARK ETING AND TECHNICAL SUPPORT SERVICES. UNDER THAT TRANSACTION, THE ASSE SSEE RENDERED MARKET AND TECHNICAL SUPPORT SERVICES TO ITS HEAD OFFICE, FOR WHICH IT WAS REMUNERATED AT COST PLUS 7.5% AND AMOUNT OF RECEIPT WAS RIGHTLY OFFERED FOR TAXATION, ON WHICH THE AUTHORITIES OPINED THAT THE CHARGE BY THE INDIAN BRANCH WAS NOT AT ALP. THE ASSESSEE HAS NOT CHALLENGED THE FOUNDAT IONAL QUESTION OF THE VERY DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF `PROVISION OF MARKET AND TECHNICAL SUPPORT SERVICES. THERE I S HARDLY ANY DIFFERENCE BETWEEN SUCH MARKET SUPPORT SERVICES AND THE BRAND BUILDING SERVICES RENDERED BY THE INDIAN BRANCH TO ITS HEAD OFFICE. W E FAIL TO COMPREHEND THAT IF DETERMINATION OF THE ALP OF MARKET SUPPORT SERVICE IS AS PER LAW, THEN HOW IT IS WRONG FOR THE AMP SERVICE RENDERED B Y THE ASSESSEE. THUS IT IS OBVIOUS THAT THE CONTENTION OF THE LD. AR THAT S INCE THE PRINCIPLE OF MUTUALITY APPLIES AND HENCE THE TRANSFER PRICING PR OVISIONS CANNOT APPLY, IS DEVOID OF MERITS AND IS HEREBY REJECTED. 25. THE SECOND ADDITIONAL GROUND IS THAT THE AMP AR E GENERAL ADMINISTRATIVE EXPENSES AND THE APPELLANT, BEING A PERMANENT ESTABLISHMENT OF FUJIFILM, IS ENTITLED FOR CLAIMING DEDUCTION OF ALL ITA NOS.5826 & 195/DEL/2013 22 EXPENSES EXECUTIVE AND GENERAL ADMINISTRATIVE EXPEN SES UNDER ARTICLE 7(3) OF THE DTAA. THE LD. AR CONTENDED THAT THE AUT HORITIES BELOW ERRED IN APPRECIATING THAT AMP EXPENSES INCURRED BY THE PE IN INDIA ARE DEDUCTIBLE UNDER ARTICLE 7(3) OF THE INDIA-JAPAN DO UBLE TAXATION AVOIDANCE AGREEMENT (DTAA). HE SUBMITTED THAT EVEN IF SUCH EXPENSES ARE LOWER OR HIGHER, THE SAME HAVE TO BE A LLOWED AS DEDUCTION IN TERMS OF ARTICLE 7(3) OF THE DTAA. 26. THERE IS NO DISPUTE ON THE FACT THAT THE IN DIAN BRANCH OFFICE OF FUJIFILM CORPORATION, JAPAN, CONSTITUTES ITS PE IN INDIA. ARTICLE 7 OF THE DTAA EXPLICITLY PROVIDES THAT IF AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON ITS BUSINESS IN THE OTHER CONTRACTING ST ATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THEN SUCH PROFITS AS ARE ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THE PE MAY BE TAXED IN TH E OTHER CONTRACTING STATE. TO PUT IT SIMPLY, IF AN ENTERPRISE OF JAPAN CARRIES ON BUSINESS IN INDIA THROUGH ITS PE, AS IS THE CASE UNDER CONSIDER ATION, THEN, THE PROFITS ATTRIBUTABLE TO THE PE SHALL BE CHARGEABLE TO TAX I N INDIA IN THE HANDS OF THE JAPANESE ENTERPRISE. PARA 2 OF ARTICLE 7 UNFOL DS THAT WHERE A JAPANESE ENTERPRISE CARRIES ON BUSINESS IN INDIA TH ROUGH ITS PERMANENT ITA NOS.5826 & 195/DEL/2013 23 ESTABLISHMENT, THEN THE PROFIT TO BE ATTRIBUTED TO THE PE SHALL BE SUCH AMOUNT WHICH IT MIGHT BE EXPECTED TO MAKE IF IT WER E A DISTINCT AND SEPARATE ENTERPRISE `DEALING WHOLLY INDEPENDENTLY W ITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT . 27. CLAUSE 3 OF ARTICLE 7 PROVIDES THAT : `IN DETERMINING THE PROFITS OF A PERMANENT ESTABLISHMENT, THERE SHALL BE ALLOWED A S DEDUCTIONS EXPENSES WHICH ARE INCURRED FOR THE PURPOSES OF THE PERMANENT ESTABLISHMENT, INCLUDING EXECUTIVE AND GENERAL ADMI NISTRATIVE EXPENSES SO INCURRED, WHETHER IN THE CONTRACTING STATE IN WH ICH THE PERMANENT ESTABLISHMENT IS SITUATED OR ELSEWHERE. IT IS THIS PARA 3 OF ARTICLE 7 ON WHICH THE LD. AR HAS FOCUSED TO BOLSTER HIS SUBMISS ION THAT FULL AMOUNT OF THE AMP EXPENSES INCURRED IN INDIA ARE TO BE ALL OWED AS DEDUCTION IN TERMS OF ARTICLE 7(3) OF THE DTAA. WE ARE NOT DISPU TING THE PROPOSITION THAT FULL AMOUNT OF AMP EXPENSES IS REQUIRED TO BE DEDUCTED AS PER THE MANDATE OF PARA 3. THE REVENUE HAS ALSO NOT DILUTED THE MANDATE OF ARTICLE 7(3) BY REDUCING THE AMOUNT OF DEDUCTION CL AIMED BY THE ASSESSEE. WHAT HAS BEEN DONE IN THE INSTANT CASE IS THAT THE TRANSFER PRICING ADJUSTMENT HAS BEEN MADE FOR THE INCOME WHI CH THE ASSESSEE ITA NOS.5826 & 195/DEL/2013 24 OUGHT TO HAVE EARNED FROM RENDERING BRAND PROMOTION SERVICES TO ITS HEAD OFFICE. IT IS PERTINENT TO NOTE THAT ARTICLE 7 (3) IS NOT THE END OF THE MATTER AND CANNOT BE READ IN ISOLATION. IT NEEDS TO BE HARMONIOUSLY SEEN WITH OTHER RELEVANT ARTICLES OF THE DTAA. THE ACTIO N OF THE AUTHORITIES IN MAKING TRANSFER PRICING ADJUSTMENT HAS THE SANCT ION OF THE DTAA ITSELF UNDER ARTICLE 9, WHOSE PARA 1 READS AS UNDER : - ` WHERE : (A) AN ENTERPRISE OF A CONTRACTING STATE PARTICIPAT ES DIRECTLY OR INDIRECTLY IN THE MANAGEMENT, CONTROL OR CAPITAL OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, OR (B) THE SAME PERSONS PARTICIPATE DIRECTLY OR INDIRE CTLY IN THE MANAGEMENT, CONTROL OR CAPITAL OF AN ENTERPRISE OF A CONTRACTING STATE AND AN ENTERPRISE OF THE OTHER CONTRACTING STATE, AND IN EITHER CASE CONDITIONS ARE MADE OR IMPOSED BETWEEN THE TWO ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATI ONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEPENDENT ENTER PRISES , THEN ANY PROFITS WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ONE OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITI ONS, HAVE NOT SO ACCRUED, MAY BE INCLUDED IN THE PROFITS OF THAT ENT ERPRISE AND TAXED ACCORDINGLY. 28. A MERE GLIMPSE OF THE ARTICLE 9 DECIPHERS THE I NCORPORATION OF THE ARMS LENGTH PRINCIPLES IN THE DTAA ON TRANSACTIONS BETWEEN TWO ENTERPRISES BECAUSE OF THEIR COMMERCIAL AND FINANCI AL RELATIONS. FROM ITA NOS.5826 & 195/DEL/2013 25 ARTICLE 7(2) OF THE DTAA, WE HAVE FOUND A SEPARATE CHARACTER OF A `PERMANENT ESTABLISHMENT INDEPENDENT OF ITS ENTERP RISE, FOR THE PURPOSES OF COMPUTING THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. AS A PE IN INDIA IS ALSO AN ENTERPRISE INDEPENDENT OF THE F OREIGN ENTERPRISE, THE MANDATE OF ARTICLE 9 OF THE DTAA MAKES IT VIVID THA T IF THE TRANSACTIONS BETWEEN THE GENERAL ENTERPRISE ABROAD AND PE IN IND IA ARE NOT AT ALP, THE SAME ARE REQUIRED TO BE SUITABLY DONE ACCORDINGLY. WHEN WE READ ARTICLE 9 ALONG WITH PARA 3 OF ARTICLE 7 OF THE DTAA, THE POS ITION WHICH EMERGES IS THAT ALBEIT DEDUCTION OF AMP EXPENSES IS TO BE ALLO WED, BUT SIMULTANEOUSLY, THE ALP OF AMP EXPENSES FOR BRAND PROMOTION IS ALSO TO BE DETERMINED AND ADJUSTMENT TO THE PROFITS SO DETERMINED UNDER A RTICLE 7(3) TO BE MADE ACCORDINGLY. THERE IS NO QUALITATIVE DIFFERENCE BET WEEN THE TWO SITUATIONS, NAMELY, ONE IN WHICH A FOREIGN ENTERPRISE HAS AN AS SOCIATED ENTERPRISE IN INDIA WHICH PROMOTES ITS BRAND BY INCURRING AMP EXP ENSES AND TRANSFER PRICING ADJUSTMENT IS WARRANTED ON THAT ACCOUNT IN THE HANDS OF THE AE IN INDIA AND THE SECOND IN WHICH THE FOREIGN ENTERPRIS E HAS A PERMANENT ESTABLISHMENT IN THE SHAPE OF A BRANCH OFFICE IN IN DIA. PROMOTION OF BRAND BY A BRANCH OFFICE IN INDIA IS ALSO REQUIRED TO BE DONE AT ALP IN THE SAME ITA NOS.5826 & 195/DEL/2013 26 WAY IN WHICH IT IS DONE FOR A TRANSACTION BETWEEN T HE FOREIGN ENTERPRISE AND ITS ASSOCIATED ENTERPRISE IN INDIA. WE, THEREFORE, HOLD IN PRINCIPLE THAT THERE CAN BE NO EMBARGO ON THE DETERMINATION OF ALP OF TH E SERVICES OF BRAND PROMOTION, RENDERED BY THE INDIAN BRANCH BY INCURRI NG AMP EXPENSES. THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE ALSO STAND S DISMISSED. 29. NOW WE TAKE UP THE ISSUE OF TRANSFER PRICIN G ADDITION ON ACCOUNT OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSES ON ME RITS. 30. THE LD. AR CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANSACT ION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE JUDGMENTS OF TH E HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 1 29 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 D EL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSIDER ED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE JUDGMENTS AND S OME OTHER TRIBUNAL ORDERS, IT WAS SUBMITTED THAT THERE WAS NO INTERNATIONAL TR ANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIPLES LAID DOWN IN TH ESE JUDGMENTS AND, ITA NOS.5826 & 195/DEL/2013 27 HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP A ND, CONSEQUENTLY, MAKING TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 31. AU CONTRAIRE , THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRANSACTION AND THE MATTER OF D ETERMINATION OF ITS ALP HAS BEEN RESTORED. HE ALSO RELIED ON A LATER JUDGME NT OF THE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WH ETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTION HAS BEEN R ESTORED FOR A FRESH DETERMINATION. IT WAS ARGUED THAT THE JUDGMENTS IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 ARE LATER IN POINT OF TIME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL ETC. AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. IT WAS SUBMITTED THAT THERE I S NO BLANKET RULE OF THE ITA NOS.5826 & 195/DEL/2013 28 AMP EXPENSES AS A NON-INTERNATIONAL TRANSACTION. H E FURTHER STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING I F AN INTERNATIONAL TRANSACTION OF AMP EXPENSES EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERAL CASES HAS RESTORED THIS ISSUE TO THE FILE O F TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGMENT OF THE HONBLE DELHI H IGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS . HE ALSO RELIED ON STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATI ONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL F URTHER REFERRED TO THREE LATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VI Z., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN R ESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE ITA NOS.5826 & 195/DEL/2013 29 HONBLE DELHI HIGH COURT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTIO N. IT WAS ARGUED THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION . 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT WHEN THE TPO HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION AND DETERMINED THE ALP BY APPLYING THE BRIGHT LINE TEST, HE DID NOT HAVE ANY OCCASION TO CONSIDER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURISDICTIONAL HIG H COURT AS DISCUSSED ABOVE AND CERTAIN OTHERS DELIVERED LATER ON AS WELL , WHICH ARE NOW AVAILABLE FOR CONSIDERATION. AS PER THESE DECISIONS, THE BRIG HT LINE TEST CANNOT BE APPLIED FOR DETERMINING THE ALP OF THE INTERNATIONA L TRANSACTION OF AMP EXPENSES, WHICH HAS, IN FACT, BEEN APPLIED BY THE T PO. RESPECTFULLY FOLLOWING THE PREDOMINANT VIEW TAKEN IN SEVERAL TRI BUNAL ORDERS OF CO- ORDINATE BENCHES, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER ON THIS ISS UE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRES H DETERMINATION OF THE ITA NOS.5826 & 195/DEL/2013 30 QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONA L TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONA L TRANSACTION IS NOT PROVED, THE MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE THE ALP OF SU CH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 33. HOWEVER, IT IS MADE CLEAR THAT IF THE ALP O F THE AMP EXPENSES COMES UP FOR DETERMINATION, THEN SELLING EXPENSES S HOULD NOT BE CONSIDERED AS A PART OF AMP EXPENSES. IN THIS REGARD, THE HON' BLE JURISDICTIONAL HIGH COURT HAS CONSISTENTLY HELD THAT SELLING EXPENSES C ANNOT BE INCLUDED IN THE AMBIT OF AMP EXPENSES. THERE IS NOT EVEN A SINGLE O RDER IN WHICH THE SELLING EXPENSES HAVE BEEN DIRECTED TO BE INCLUDED IN THE OVERALL AMP EXPENSES. SIMPLY BECAUSE THE DEPARTMENT HAS NOT AC CEPTED THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT AND SLPS H AVE BEEN ADMITTED, THE BINDING NATURE OF SUCH JUDGMENTS IS NOT MITIGATED I N ANY MANNER. UNLESS THE HON'BLE SUPREME COURT REVERSES THE JUDGMENT OF A HIGH COURT, THE ITA NOS.5826 & 195/DEL/2013 31 SAME HOLDS THE FIELD AND REMAINS BINDING ON ALL THE AUTHORITIES WORKING UNDER ITS JURISDICTION. IT IS, THEREFORE, DIRECTED THAT SELLING EXPENSES SHOULD BE EXCLUDED FROM THE OVERALL PURVIEW OF THE AMP EXP ENSES FOR THE BENCHMARKING EXERCISE, IF NECESSITY ARISES. 34. AT THIS JUNCTURE, IT IS SIGNIFICANT TO MENTION THAT THE ASSESSEE CARRIED ON BUSINESS IN INDIA THROUGH ITS BRANCH OFFICE IN I NDIA FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09. THEREAFTER, A NEW PRIVA TE LIMITED COMPANY WAS INCORPORATED WITH NAME AND STYLE OF FUJIFILM IN DIA PRIVATE LTD. IT IS A MATTER OF RECORD THAT IN THE ASSESSMENT YEAR 2009-1 0 ONWARDS ALSO, AMP EXPENSES WERE INCURRED BY THE INDIAN AE IN THE SAME WAY IN WHICH THESE HAVE BEEN DONE FOR THE YEARS UNDER CONSIDERATION. ADDITIONS ON ACCOUNT OF AMP EXPENSES WERE MADE. WHEN THE MATTER FINALLY CAM E UP FOR CONSIDERATION BEFORE THE TRIBUNAL, THE ISSUE OF AMP EXPENSES HAS BEEN RESTORED TO THE ASSESSING OFFICER FOR RE-DOING IT I N TERMS OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA LTD. (SUPRA) . A COPY OF SUCH ORDER DATED 29.04.2016 ITA NOS.5826 & 195/DEL/2013 32 RELATING TO ASSESSMENT YEAR 2009-10, 2010-11 AND 20 11-12 HAS BEEN PLACED ON RECORD. 35. TO SUM UP, WE SET ASIDE THE IMPUGNED ORDER O N THE ISSUE OF ADDITION TOWARDS TRANSFER PRICING ADJUSTMENTS AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SERVICE IN BRAND BUIL DING BY THE INDIAN BRANCH AND ALSO THE PROVISION OF MARKETING AND TECHNICAL S UPPORT SERVICE IN CONSONANCE WITH OUR ABOVE DIRECTIONS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS ASSESSMENT YEAR 2007-08 36. THIS APPEAL IS DIRECTED AGAINST THE FINAL ASSES SMENT ORDER PASSED BY THE AO ON 28.10.2011. 37. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAI NST THE TRANSFER PRICING ADDITION IN RESPECT OF AMP EXPENSES AMOUNTING TO RS .78,20,848/-. THE ASSESSEE HAS RAISED TWO ADDITIONAL GROUNDS FOR THIS YEAR AS WELL WHICH ARE SIMILAR TO THE ASSESSMENT YEAR 2008-09 ABOVE. ITA NOS.5826 & 195/DEL/2013 33 38. BOTH THE SIDES ARE IN AGREEMENT THAT THE FAC TS AND CIRCUMSTANCES OF THE INSTANT YEAR ARE SIMILAR TO THOSE OF THE A.Y. 2008 -09. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE DISMISS THE ADDITIONAL GROUND S; SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR RE-DECIDING THE ISSUE OF AMP EXPENSES IN THE LIGHT OF THE DIREC TIONS GIVEN ABOVE. 39. IN THE RESULT, BOTH THE APPEALS ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.04.201 8. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 04 TH APRIL, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.