PCIT Vs Suzuki Motorcycle India Pvt Ltd (Delhi High Court)
Summary: The Delhi High Court dismissed appeals filed by the Department under Section 260A of the Income Tax Act, 1961, challenging the Income Tax Appellate Tribunal’s order dated 22.11.2022 concerning the Advertising, Marketing, and Promotion (AMP) adjustment. The Department questioned the Tribunal’s rejection of the AMP adjustment by applying the Bright Line Test, relying upon the Delhi High Court decisions in Sony Ericsson Mobile Communications India Pvt. Ltd. v. Commissioner of Income Tax [2015] 374 ITR 118 (Delhi) and Maruti Suzuki Ltd. v. Commissioner of Income Tax [2016] 381 ITR 117 (Delhi).
The assessee submitted that the Delhi High Court had repeatedly held that the Bright Line Test was not a method sanctioned by law. It also relied upon the rejection by the Supreme Court of SLP(C)29270/2016 in Commissioner of Income Tax (LTU) v. M/s Whirlpool Of India Ltd., arising from the judgment dated 22.12.2015 in ITA 610/2014.
The Department submitted that the Special Leave Petitions against Sony Ericsson and Maruti Suzuki remained pending before the Supreme Court and that the issue concerning use of the Bright Line Test was therefore pending. The High Court nevertheless dismissed the Department’s appeals, following its judgments in Sony Ericsson and Maruti Suzuki. It clarified that if the Revenue’s SLPs or appeals against those judgments were allowed, the law declared by the Supreme Court would apply mutatis mutandis to the assessee’s case. All pending applications were also disposed of.
Background of the Appeals
The appeals were preferred by the Department under Section 260A of the Income Tax Act, 1961, challenging the order dated 22.11.2022 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘I’, New Delhi.
The Department proposed a question concerning whether the Tribunal was justified in rejecting the AMP adjustment by applying the Bright Line Test while relying upon the Delhi High Court judgments in Sony Ericsson and Maruti Suzuki, particularly when the Department maintained that the issue was pending before the Supreme Court.
Department’s Challenge to the AMP Adjustment Decision
The question proposed by the Department specifically concerned the Tribunal’s rejection of the Advertising, Marketing, and Promotion (AMP) adjustment through application of the Bright Line Test.
The Department’s position was that the Tribunal had relied upon the judgments rendered by the Delhi High Court in Sony Ericsson and Maruti Suzuki. The Department further maintained that the SLPs against those judgments were pending before the Supreme Court.
The Bright Line Test and the treatment of AMP expenses have been the subject of judicial consideration in transfer pricing proceedings.
Submissions on Behalf of the Assessee
Mr. Vohra, learned senior counsel for the respondent/assessee, submitted a compilation containing a series of judgments.
He submitted that the Delhi High Court had, in innumerable cases, held that the Bright Line Test was not a method sanctioned by law. On that basis, he submitted that the appeals were liable to be dismissed.
He further submitted that SLP(C)29270/2016 titled Commissioner of Income Tax (LTU) v. M/s Whirlpool Of India Ltd., filed against the judgment dated 22.12.2015 rendered by the Delhi High Court in ITA 610/2014 titled The Commissioner of Income Tax-LTU v. Whirlpool Of India Ltd., had also been rejected by the Supreme Court vide order dated 20.11.2024.
Submissions on Behalf of the Department
Mr. Rai, learned senior standing counsel for the appellant/Department, submitted that the SLPs against the judgments of the Delhi High Court rendered in Sony Ericsson (supra) and Maruti Suzuki (supra) were pending.
He submitted that the issue as to whether the Bright Line Test method could be used for determining whether incurring AMP expenses resulted in an international transaction itself was pending before the Supreme Court.
Delhi High Court’s Decision
Having regard to the facts and circumstances of the case, the Delhi High Court dismissed the appeals filed by the Department.
The Court followed its judgments in Sony Ericsson (supra) and Maruti Suzuki (supra) while dismissing the appeals. Thus, the Tribunal’s rejection of the AMP adjustment by applying the Bright Line Test was not interfered with in the present appeals.
The Court, however, expressly clarified that the Revenue would not be required to file separate appeals against the order in the present case. In case the SLPs or appeals filed by the Revenue against the judgments in Sony Ericsson (supra) and Maruti Suzuki (supra) were allowed, the law declared by the Supreme Court would apply mutatis mutandis to the assessee’s case and the consequences would follow.
Final Directions
The Delhi High Court dismissed the Department’s appeals and made the above clarification concerning any subsequent decision of the Supreme Court in the Revenue’s SLPs or appeals against Sony Ericsson (supra) and Maruti Suzuki (supra).
All pending applications were also disposed of.
Cases Discussed
- Sony Ericsson Mobile Communications India Pvt. Ltd. v. Commissioner of Income Tax [2015] 374 ITR 118 (Delhi) — Delhi High Court
- Maruti Suzuki Ltd. v. Commissioner of Income Tax [2016] 381 ITR 117 (Delhi) — Delhi High Court
- Commissioner of Income Tax (LTU) v. M/s Whirlpool Of India Ltd. — SLP(C)29270/2016 — Supreme Court
- The Commissioner of Income Tax-LTU v. Whirlpool Of India Ltd. — ITA 610/2014 — Delhi High Court
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
By way of the present appeals preferred under Section 260A of the Income Tax Act, 1961, laying a challenge to the order dated 22.11.2022 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘I’, New Delhi (hereinafter referred to as ‘the Tribunal’), the appellant/Department has proposed the following question of law:
“Whether on the facts and circumstances of the case and in law, the Tribunal was justified in rejecting the Advertising, Marketing, and Promotion (AMP) adjustment by applying the Bright Line Test, by relying upon the cases of Sony Ericsson Mobile Communications India Pvt. Ltd. v. Commissioner of Income Tax [2015] 374 ITR 118 (Delhi) and Maruti Suzuki Ltd. v. Commissioner of Income Tax [2016] 381 ITR 117 (Delhi), when the matter in these cases is pending before Hon’ble Supreme Court of India on the issue of AMP expenses?”
2. The question itself suggests that the Tribunal has relied upon the judgments rendered by this Court in the cases of Sony Ericsson (supra) and Maruti Suzuki Ltd (supra).
Mr. Vohra, learned senior counsel for the respondent/assessee, submitted before us, a compilation containing a series of judgments and submitted that this Court has, in innumerable cases, held that the Bright Line Test is not a method sanctioned by law and therefore, the present appeals are liable to be dismissed.
He further submitted that SLP being SLP(C)29270/2016 titled Commissioner of Income Tax (LTU) v. M/s Whirlpool Of India Ltd., filed against the judgment dated 22.12.2015 rendered by this Court in ITA 610/2014 titled The Commissioner of Income Tax-LTU v. Whirlpool Of India Ltd., has also been rejected by the Supreme Court vide order dated 20.11.2024.
Mr. Rai, learned senior standing counsel for the appellant/Department, on the other hand, submitted that the SLP(s) against the judgments of this Court rendered in Sony Ericsson (supra) and Maruti Suzuki (supra) are pending and the very issue as to whether the Bright Line Test method can be used for the purpose of determining as to whether incurring AMP expenses result in international transaction itself, is pending before the Supreme Court.
Having regard to facts and circumstances of the case, we dismiss these appeals filed by the Department, following the judgments of this Court in Sony Ericsson (supra) and Maruti Suzuki (supra). We, however, make it clear that the Revenue shall not be required to file separate appeal(s) against the order instant and in case, the SLP(s)/appeal(s) filed by the Revenue against the judgment rendered in Sony Ericsson (supra) and Maruti Suzuki (supra) is allowed, the law so declared shall mutatis mutandis apply to assessee’s case, as well and consequence shall follow.
All pending applications are also disposed.
