Case Law Details
Brief Facts
1. The assessee company is engaged in the business of providing investment advisory and marketing support services. The assessee company provided advisory services to its Associated Enterprises (“AEs”) named Deutsche Asset Management (Asia) Limited (in short “DAMAL”), Singapore. DAMAL is a fund Manager for Deutsche India Equity Fund.
2. In consideration for providing such advisory services, DAMAL has given 50% shares of the fees received by it to the assessee. The TPO noticed that the assessee has received share of 70% of the fees from another AE, Germany for providing liaisoning/marketing support services to it.
3. Though the assessee had bench marked the transactions under TNMM with net cost plus margin, the TPO held that the said method is not acceptable. The TPO further held that the assessee should have taken share of 70% of fees for advisory services provided to DAMAL also. Accordingly, he proposed to adjustment of Rs. 1.50 crores to the income returned by the assessee.
“A transactional profit method examines the net profit margin relative to an appropriate base (e.g., costs, sales, assets) that a taxpayer realises from a controlled transaction (or transactions that it is appropriate to aggregate).”
Assessee Contention
1. It was contended that the TPO has proposed adjustment by using a controlled transaction entered between the assessee and its AE in Germany to benchmark another controlled transaction entered into by the assessee with its AEs at Singapore.
2. It was further submitted that the assessee was providing advisory services to DAMAL, Singapore which is functionally different from the liasioning/marketing support services provided to another AE located in Germany.
3. Assessee submitted that an identical adjustment made in the assessee’s own case in A.Y. 2006-07 came to be considered by the co-ordinate bench of this Tribunal in ITA No. 7717/Mum/2010 and the Tribunal vide its order dated 12-12-2012 has given a clear finding that the fee received by the assessee for providing marketing and liasioning services cannot be equated with the advisory services given to an investment manager.
4. The ld. Counsel for the assessee further submitted that the TPO, in the subsequent years, has accepted the fact that the services provided to AEs located in Singapore and Germany are different and accordingly did not propose any adjustment in assessment years 2010-11 and 2011-12.
Revenue Contention
The revenue did not accept the benchmarking of the transactions by assessee under TNMM with net cost plus margin. Revenue contended that the order of the TPO making adjustment on the basis, that the assessee has received share of 70% of the fees from another AE, Germany for providing liaisoning/marketing support services to it, is correct. According to the revenue, the services provided to AE, Germany and AE, Singapore are similar in nature and thus equated both of them at 70 % share of fees.
Court’s Order
The Tribunal, in assessment year 2006-07, in the assessee’s own case and on identical facts/ circumstances, has given a clear finding that the fee received by the assessee for providing marketing and liasioning services cannot be equated with the advisory services given to an investment manager. Also the Tribunal in its order stated that the services provided to AE, Singapore are different and cannot be equated with the kind of services provided to AE, Germany. The facts and circumstances of the issue are identical in the instant year with the order passed by the Tribunal in the hands of the assessee for AY 2006-07. Thus the ITAT has ordered the deletion of the TP adjustment.
(Analysed by CA Amit Handa)
