Case Law Details
Brief of the Case
Delhi High Court held In the case of Bausch & Lomb Eye care (India) Pvt. Ltd. that in the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) make this position clears. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. The transfer pricing adjustment is not expected to be made by deducing from the difference between the ‘excessive’ AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE.
Facts of the Case
The Assessee, Bausch & Lomb (India) Pvt. Ltd. (‘BLI’), formerly known as Bausch & Lomb Eyecare (India) Pvt. Ltd., was incorporated on 30th May 2000 under the Companies Act, 1956. It is engaged in the business of manufacturing and trading of soft contact lenses, eye care solutions and protein removing enzyme tablets (vision-care segment) and distribution of imported products such as Excimer Laser System, cataract machines and intra-ocular lenses (surgical segment). The immediate parent company of the Assessee is B&L South Asia Inc., which holds 99.9% of its equity share capital. The balance 0.01% is held by B&L Opticare Inc., USA (‘B&L, USA’). The Assessee used the trademarks, brand name, logo, brands, processes, technical data and operative quality standard owned by the B&L Group worldwide without making any payment of royalty. B&L, USA did not charge the Assessee for the use of the logo. The Assessee also gets the global research report of the B&L Group free of cost.
The Assessee filed its return for AY 2006-07, declaring income of Rs. 16,85,26 ,980. The return was picked up for scrutiny and notice dated 4th July 2008 was issued to the Assessee by the AO under Section 143(2). The AO referred the matter to the Transfer to TPO for determination of the arm’s length price of the international transactions. The TPO concluded that the Assessee had developed marketing intangibles for its AE and was in the process of making the intangible even more valuable by incurring huge AMP expenses, bearing risks and using both its tangible assets and skilled, trained man power. The Assessee was described as a limited risk distributor. The TPO held that the AMP expenses did not benefit the Assessee as it had incurred a loss in AY 2006-07. The TPO noted that the Assessee did not receive any reimbursement from its AE for the AP expenses. Further the TPO applied a mark-up of 10% and determined the ALP of the AMP expenses at Rs. 19,59,90,441. This was to be added to the income of the Assessee for the AY in question, i.e., 2006-07. Similarly, additions of Rs. 25.86 crores, Rs. 13.53 crores, Rs. 9.90 crores and Rs. 6.24 crores were made in AYs 2007-08, 2008-09, 2009-10 and 2010-11 respectively including different mark-up percentages determined by the TPO. The DRP, inter alia, found that the TPO had relied on the function analysis and concluded that the Assessee had developed marketing intangibles for the sale in India of the products manufactured by its AE by “incurring huge AMP expenditure”.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Similar to the Maruti Ruling