RICS INDIA PRIVATE LTD. ,HARYANA V. .DCIT CIRCLE-3(1), HARYANA

ITA 816/DEL/2022

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RICS India Pvt. Ltd, a subsidiary of the Royal Institution of Chartered Surveyors, appealed against the transfer pricing adjustments made by the Assessing Officer (AO) and the Transfer Pricing Officer (TPO) concerning the Assessment Year 2017-18. The primary contention was whether the subscription fees and scholarships handled by RICS India on behalf of its Associated Enterprise (AE) should be subjected to a transfer pricing adjustment with a markup of 15%. The Tribunal found that RICS India acted merely as a pass-through entity in these transactions, collecting and remitting funds without any profit margin, and thus, no markup was necessary. The Tribunal's decision was based on the nature of the transactions and the lack of risk or asset involvement by RICS India.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470165 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ZAFARUL HAQUE TANWEER
• Assessee Lawyers: AJIT KUMAR JAIN
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 143(3); 139(1); 13; 244A

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 816/Del/2022 (Assessment Year: 2017-18) RICS India Pvt. Ltd, GF-17, Ground Floor, Block B, Vatika Atrium Centre 53, Gurgaon 122002 Vs. Additional/ Joint/ Deputy/ Assistant Commissioner of Income Tax/ Income-tax Officer, national Faceless Assessment Centre, Delhi (Appellant) (Respondent) PAN: AAFCR7432K Assessee by : Shri Ajit Kumar Jain, Adv Ms. Bhawna Gupta, CA Shri Akshat Jain, CA Revenue by: Shri Zafarul Haque Tanweer, CIT DR Date of Hearing 11/12/2024 Date of pronouncement 18/12/2024 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.387/Del/2021 for AY 2015-16, arises out of the order of the ld Assessing Officer, New Delhi [hereinafter referred to as ‘ld. AO’, in short] dated 28/02/2022 passed u/s 143(3) r.w.s. 144C(13) read with Section 144B of the Act. 2. Though the assessee has raised several grounds before us, the effective issue to be decided in this appeal is as to whether the subscription fees received by the assessee as a pass through entity and paid to the Associated Enterprise (AE) and scholarships received from AE and paid to third parties by the assessee as a pass through entity could be ITA No. 816/Del/2022 RICS India Pvt. Ltd Page | 2 subjected to transfer pricing adjustment with a markup of 15 percent there on. 3. We have heard the rival submissions and perused the materials available on record. The assessee is incorporated in India on 14-02-2012 as a wholly owned subsidiary of Royal Institution of Chartered Surveyors (RICS). The assessee is engaged in providing marketing support services to RICS and does local promotion, advertising and marketing of RICS in order to raise the awareness of RICS as a global chartered body for property professionals and its corporate strategy. The assessee has entered into a service agreement with RICS. The functions performed by the assessee in relation to the international transaction pertaining to provision of marketing support services are as follows:- a) Local promotion and marketing of RICS. b) Networking with businesses and industry. c) Networking with higher education establishments. d) Collection of membership subscription fees locally and remittance to RICS as beneficial owner (acting as a mere collection agent). 4. The Return of Income for the Assessment Year 2017-18 was filed by the assessee on 30-11-2017 declaring loss of Rs. 1,49,16,557/-. The case of the assessee was selected for scrutiny and the Learned AO made a reference to Transfer Pricing Officer (TPO) under section 92CA(1) of the Act for benchmarking the international transactions of the assessee. The Learned TPO passed an order under section 92CA(3) of the Act on 21-01- 2021. 5. The assessee is engaged in the business of provision of marketing support services (MSS) and had earned revenue of Rs 10,38,41,652/- during the year under consideration from its AE . This transaction was ITA No. 816/Del/2022 RICS India Pvt. Ltd Page | 3 benchmarked by the assessee using Transactional Net Margin Method (TNMM). The margin derived by the assessee was 15 percent in this segment. Though the learned TPO proposed a transfer pricing adjustment of Rs 62,79,982/- in the first round of proceedings, the same was ultimately brought down to Rs Nil pursuant to rectification order issued by him at subsequent stage. Hence, the assessee cannot have any grievance in this regard. Accordingly, the Ground Nos. 3 to 9 raised by the assessee are hereby dismissed as not pressed and infructuous. 6. The assessee was in receipt of Rs 3,05,68,416/- towards subscription which was collected by it on behalf of the AE. Similarly the assessee has paid scholarship on behalf of AE to the tune of Rs 21,50,025/-. These two transactions were reported by the assessee as international transactions in its transfer pricing study report (TPSR). The assessee submitted that in respect of subscription amount collected, the same is related to membership fee paid for becoming a member or to continue as a member of RICS. This fee was collected by the assessee company from the members and then remitted back to the foreign AE. In respect of scholarship fee paid on behalf of AE, it was submitted that Assessee Company paid / disbursed scholarships to the students enrolled in RICS SBE, which was subsequently recovered from its AE. The assessee also submitted that one of the functions performed by it to its AE is collection of subscription fee paid by the members in India and payment of scholarships to students on behalf of AE, among others. The learned TPO however observed that collection of subscription fee and disbursement of scholarship is nothing but the marketing support services itself on which the SSE ought to have charged with markup of 15 percent on the services. Since the same was not done by the assessee, the learned ITA No. 816/Del/2022 RICS India Pvt. Ltd Page | 4 TPO proposed an adjustment of Rs 49,07,766/- which was adopted by the learned AO in the final determination of total income of the assessee. 7. The learned AR drew our attention to page 3 of the synopsis explaining the flow of transactions carried out by the assessee on behalf of its AE in pictorial form which is reproduced here under:- 8. From the above, it is very clear that assessee had collected the subscription from the members on behalf of the AE and passed on the very same amount to the AE without having any profit element. Hence the assessee had merely acted as a pass through entity. Similarly, the assessee had disbursed the scholarships to students enrolled in RICS programme on behalf of the AE. This scholarship which has been paid by the assessee had been duly reimbursed by the AE to the assessee. Hence there is no risk involved by the assessee in this transaction. There is no need to employ any assets for carrying out this transaction on behalf of the AE by the assessee. Hence there is no need for the assessee to even charge a markup on rendition of these services on behalf of the AE. Accordingly, the transfer pricing adjustment made in the sum of Rs 49,07,766/- qua these two transactions deserve to be deleted. Accordingly, the Ground Nos. 10 to 12 raised by the assessee are hereby allowed. 9. The Ground No. 13 raised by the assessee is challenging the levy of interest under section 234A of the Act. The learned AO is directed to examine whether the return was filed within the due date prescribed ITA No. 816/Del/2022 RICS India Pvt. Ltd Page | 5 under section 139(1) of the Act or extended due date prescribed by the CBDT for the year under consideration. If the return is filed beyond the said due date /extended due date, then interest under section 234A of the Act is leviable. The chargeability of interest under section 234 B of the Act is consequential in nature. In respect of interest charged under section 234C of the Act, we would like to state that the law is very clear that interest under section 234C of the Act should be charged only on the returned income and not on the assessed income. With regard to claim of interest under section 244A of the Act, the same is to be done by the learned AO in accordance with law. Accordingly, the Ground No. 13 is disposed of in the above mentioned manner. 10. The Ground No. 14 raised by the assessee is challenging the initiation of penalty proceedings under section 270 A of the Act which would be premature for adjudication at this stage and hence dismissed. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 18/12/2024. -Sd/- -Sd/- (ANUBHAV SHARMA) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18/12/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "