Cushman & Wakefield India (P) Ltd. v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 0922 (Del-Trib) : (2012) 135 ITD 0242 : (2012) 143 TTJ 0692 : (2012) 066 DTR 0028 : (2012) 017 ITR (Trib) 0048 INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALPReimbursement of cost for infra group services--The assessee was engaged in the business of rendering services in connection with acquisition, sales and lease of real estate property and other services such as advisory and research, facilities management, project management, etc., in the real estate sector. It filed its return of income at Rs. 20,46,62,822 on 27-11-2006 which has been assessed by the aforementioned order at an income of Rs. 23,63,43,039 by making the certain additions.So far as it relates to the addition made on account of ALP under section 92CA(3), the assessee entered into the certain international transactions with its AE. The assessee submitted TP study, to support the transactions entered into by it with its AEs. Not satisfied with the aforementioned findings in aforementioned TP study, the assessing officer referred the issue to the Transfer Pricing Officer (TPO) who has submitted his order. After listing out the aforementioned six international transactions of the assessee with its AEs, the TPO has observed that regarding transactions at serial Nos. 1 to 4, namely, the transactions of Rs. 1,73.26.631, Rs. 63,38,339, Rs. 21,68,790 and Rs. 6,45,662, 'no adverse inference is drawn', meaning thereby TPO has accepted that the aforementioned four transactions are at arm's length. So far as it relates to the transactions mentioned at serial No. 5, he noted that this contains two amounts of reimbursements which have been described as follows in the order : '(a) Reimbursement of company's share of salary for common manpower resource, per cost-sharing arrangement of Rs. 92,25,838 paid to CHK. (b) Reimbursement of company's share of salary for common manpower resource, per cost-sharing arrangement of Rs. 13,77,092 paid to C Singapore.' The TPO required the assessee to submit the nature of services received by it from its AEs with regard to which such reimbursement had been made. The reply of the assessee has been summarized by the TPO with regard to both of the above-mentioned transactions. TPO again asked the assessee whether the services for which the cost has been paid would constitute to be intra-group services as per the OECD Guidelines. According to TPO, the expenses incurred with respect to intragroup services can be allowed only in the circumstances in a case where the activity provides a respective group member with the economic or commercial value to enhance its commercial position and such fact can be determined by considering whether independent enterprise in comparable circumstances would have been willing to pay for the activity fee performed for it by an independent enterprise or would have performed the activity in-house for itself. He observed that if the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the ALP. The assessee was required to mention that what was the role and scope of the agreement entered into by the assessee with C& WH and Singapore and what activities are performed and should be routinely performed by the assessee itself. He observed that agreement entered by the assessee with these two AEs does not reveal that these AEs are specifically named service centers for the assessee. The scope of the agreement does not prohibit them from rendering services to third parties as well. In such circumstances, TPO recorded a finding that the scope of services for which many agreements are entered into are incidental and ancillary services which, in any way, are performed by the assessee itself. Therefore, no independent enterprise would be willing to pay for the services which are a part of its routine business performed by it and would not engage such agency to receive such incidental services for a payment even at cost. It was further submitted by the assessee that these AEs are not dedicated service centres for the assessee. It was pointed out that the question of these AEs rendering such services to third parties does not arise. TPO did not find any force in such submission and has observed that it is not disputed that activities for which the payment is made by the assessee are not performed by the assessee itself. Then, TPO referred to the OECD Guidelines and has referred to paras 7.4, 7.5 and 7.6 and referring to these paras he observed the key measures in identifying intra-group servics. It was in this manner, TPO had worked out the adjustment of Rs. 1,06,02,930 which had been added to the income of the assessee. The assessing officer in the approved order had made the addition against which the assessee had filed objections to the DRP. DRP had observed that the ground was heard at length, the paper book filed by the assessee was perused. No further documentary evidence was furnished by the assessee in respect of cost allocations. The reliance by the assessee to various case laws was misplaced. The observation of the TPO that the services availed by the assessee are not intra-group services and, hence, no remuneration should have been paid by the assessee to its AEs was correct and, therefore, no directions were being issued. Held: The claim of the assessee regarding the payment made to CWS. The said payment was claimed by the assessee on the ground that CWS had used one of its employees to render liaison services to IBM on behalf of the assessee. It was the case of the TPO that the assessee did not submit documentary evidence in support of the claim. TPO also referred to the news report dt. 8-12-1993 as appeared in 'Real Estate Weekly' that business relationship between Cushman & Wakefield USA (CWUS) and IBM were very old and parent company has been looking after as the real estate work of IBM since early 1990. Therefore, TPO has observed that looking into this fact, the assessee who has started the business in India may have received incidental benefit from such old business relationship between the holding company of the assessee and IBM. Another reason for rejection of the claim of the assessee by the TPO is para 7.13 of OECD Commentary according to which the incidental benefits are not intra-company services and, thus, he had held that liaison services were not intra-group services. The assessee had been shown to have earned substantial revenues from IBM and that could not be the result of only incidental benefit received by te assessee from old busienss relationship between the holding company of the assessee and IBM. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0922 (Del-Trib) : (2012) 135 ITD 0242 : (2012) 143 TTJ 0692 : (2012) 066 DTR 0028 : (2012) 017 ITR (Trib) 0048

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPReimbursement of cost for infra group services--The assessee was engaged in the business of rendering services in connection with acquisition, sales and lease of real estate property and other services such as advisory and research, facilities management, project management, etc., in the real estate sector. It filed its return of income at Rs. 20,46,62,822 on 27-11-2006 which has been assessed by the aforementioned order at an income of Rs. 23,63,43,039 by making the certain additions.So far as it relates to the addition made on account of ALP under section 92CA(3), the assessee entered into the certain international transactions with its AE. The assessee submitted TP study, to support the transactions entered into by it with its AEs. Not satisfied with the aforementioned findings in aforementioned TP study, the assessing officer referred the issue to the Transfer Pricing Officer (TPO) who has submitted his order. After listing out the aforementioned six international transactions of the assessee with its AEs, the TPO has observed that regarding transactions at serial Nos. 1 to 4, namely, the transactions of Rs. 1,73.26.631, Rs. 63,38,339, Rs. 21,68,790 and Rs. 6,45,662, 'no adverse inference is drawn', meaning thereby TPO has accepted that the aforementioned four transactions are at arm's length. So far as it relates to the transactions mentioned at serial No. 5, he noted that this contains two amounts of reimbursements which have been described as follows in the order : '(a) Reimbursement of company's share of salary for common manpower resource, per cost-sharing arrangement of Rs. 92,25,838 paid to CHK. (b) Reimbursement of company's share of salary for common manpower resource, per cost-sharing arrangement of Rs. 13,77,092 paid to C Singapore.' The TPO required the assessee to submit the nature of services received by it from its AEs with regard to which such reimbursement had been made. The reply of the assessee has been summarized by the TPO with regard to both of the above-mentioned transactions. TPO again asked the assessee whether the services for which the cost has been paid would constitute to be intra-group services as per the OECD Guidelines. According to TPO, the expenses incurred with respect to intragroup services can be allowed only in the circumstances in a case where the activity provides a respective group member with the economic or commercial value to enhance its commercial position and such fact can be determined by considering whether independent enterprise in comparable circumstances would have been willing to pay for the activity fee performed for it by an independent enterprise or would have performed the activity in-house for itself. He observed that if the activity is not one for which the independent enterprise would have been willing to pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the ALP. The assessee was required to mention that what was the role and scope of the agreement entered into by the assessee with C& WH and Singapore and what activities are performed and should be routinely performed by the assessee itself. He observed that agreement entered by the assessee with these two AEs does not reveal that these AEs are specifically named service centers for the assessee. The scope of the agreement does not prohibit them from rendering services to third parties as well. In such circumstances, TPO recorded a finding that the scope of services for which many agreements are entered into are incidental and ancillary services which, in any way, are performed by the assessee itself. Therefore, no independent enterprise would be willing to pay for the services which are a part of its routine business performed by it and would not engage such agency to receive such incidental services for a payment even at cost. It was further submitted by the assessee that these AEs are not dedicated service centres for the assessee. It was pointed out that the question of these AEs rendering such services to third parties does not arise. TPO did not find any force in such submission and has observed that it is not disputed that activities for which the payment is made by the assessee are not performed by the assessee itself. Then, TPO referred to the OECD Guidelines and has referred to paras 7.4, 7.5 and 7.6 and referring to these paras he observed the key measures in identifying intra-group servics. It was in this manner, TPO had worked out the adjustment of Rs. 1,06,02,930 which had been added to the income of the assessee. The assessing officer in the approved order had made the addition against which the assessee had filed objections to the DRP. DRP had observed that the ground was heard at length, the paper book filed by the assessee was perused. No further documentary evidence was furnished by the assessee in respect of cost allocations. The reliance by the assessee to various case laws was misplaced. The observation of the TPO that the services availed by the assessee are not intra-group services and, hence, no remuneration should have been paid by the assessee to its AEs was correct and, therefore, no directions were being issued. Held: The claim of the assessee regarding the payment made to CWS. The said payment was claimed by the assessee on the ground that CWS had used one of its employees to render liaison services to IBM on behalf of the assessee. It was the case of the TPO that the assessee did not submit documentary evidence in support of the claim. TPO also referred to the news report dt. 8-12-1993 as appeared in 'Real Estate Weekly' that business relationship between Cushman & Wakefield USA (CWUS) and IBM were very old and parent company has been looking after as the real estate work of IBM since early 1990. Therefore, TPO has observed that looking into this fact, the assessee who has started the business in India may have received incidental benefit from such old business relationship between the holding company of the assessee and IBM. Another reason for rejection of the claim of the assessee by the TPO is para 7.13 of OECD Commentary according to which the incidental benefits are not intra-company services and, thus, he had held that liaison services were not intra-group services. The assessee had been shown to have earned substantial revenues from IBM and that could not be the result of only incidental benefit received by te assessee from old busienss relationship between the holding company of the assessee and IBM.