PepsiCo India Holdings (P.) Ltd. v. Addl. CIT

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The Tax Publishers2018 TaxPub(DT) 7503 (Del-Trib) : (2019) 197 TTJ 0393 PepsiCo India Holdings (P.) Ltd. v. Addl. CIT INCOME TAX ACT, 1961 --Transfer pricing--International transactionAMP expenses ----As there was no arrangement/agreement between assessee and AE to incur AMP expenses and no benefit having any kind of bearing on profits and assets, etc., accrued to AE from AMP expenses incurred by the assessee. Therefore, incurrance of AMP expenses could not be treated as an international transaction warranting ALP adjustment.--Assessee, involved in manufacturing of soft drink/juice based concentrates, had obtained licence from AE based at US to exploit brand owned by its AE. It incurred huge advertising marketing and promotional (AMP) expenses to promote AE's trademark. TPO treated this as an international transaction and suggested ALP adjustment.Held: There was no arrangement/agreement between assessee and AE to incur AMP expenses. Further, as per FAR analysis no benefit having any kind of bearing on profits and assets, etc., accrued to AE from AMP expenses incurred by the assessee. Therefore, incurrance of AMP expenses could not be treated as an inernational transaction and no ALP adjustment was called for. Income Tax Act, 1961 Section 92B *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2006-07 to 2013-14 INCOME TAX ACT, 1961 --Transfer pricing--Determination of ALPInterest on outstanding receivables from AE----As there was a complete uniformity in the act of assessee in not charging interest from both AEs and non-AEs debtors for delay in realization of export proceeds, hence, TPO could not make adjustment on account of notional interest on delayed receivables, because similar credit period was given to both related and unrelated parties.--Assessee entered into transactions with its AE abroad. TPO suggested ALP adjustment on account of notional interest on outstanding from trade receivables AE. *Held:* As there was a complete uniformity in the act of assessee in not charging interest from both AEs and non AEs debtors for delay in realization of export proceeds, hence, TPO could not make adjustment on account of notional interest on delayed receivables, because similar credit period was given to both related and unrelated parties. Income Tax Act, 1961 Section 92C *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2006-07 to 2013-14 INCOME TAX ACT, 1961 --Business expenditure--Payment of sponsorship fee to ICC----It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. As such incurring of expenditure was ostensibly for promotion of business only and hence, no disallowance was called for.--Assessee involved in manufacturing of soft drink/juice based concentrates claimed deduction of sponsorship fee paid to ICC. AO disallowed the same as non-business expenditure. *Held:* It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. As such incurring of expenditure was ostensibly for promotion of business only and hence, no disallowance was called for. Income Tax Act, 1961 Section 37(1) *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 2006-07 to 2013-14 INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt income----It is only when assessee is able to substantiate its claim from the nature of exempt income from and having regard to accounts maintained and nature of expenditure debited that nothing is attributable for earning of exempt income, the onus stands discharged to claim no disallowance under section 14A. As it was not so in the instant case, AO was justified in making disallowance.--Assessee earned huge dividend income claimed as exempt. AO invoked section 14A read with rule 8D and worked out disallowance. Assessee's case was that no expenditure could be said to be attributable to earning of exempt income.Held: It is only when assessee is able to substantiate its claim from the nature of exempt income from and having regard to accounts maintained and nature of expenditure debited that nothing is attributable for earning of exempt income, the onus stands discharged to claim no disallowance under section 14A. As it was not so in the instant case, AO was justified in making disallowance. Income Tax Act, 1961 Section 14A *Relied:* Maxopp Investment Ltd. v. CIT [Civil Appeal Nos. 104-109 of 2015, dt. 12-2-2018] : 2018 TaxPub(DT) 1403 (SC). *REFERRED :* FAVOUR : Against the assessee. A.Y. : 2006-07 to 2013-14 INCOME TAX ACT, 1961 --Income--Capital or revenue receiptSales tax subsidy ----Subsidy was given by State Government for the purpose of industrialization of State which was available only to new units or to existing units which were initiating substantial expansion. Accordingly, subsidy received by assessee under State Government incentive Scheme was capital in nature and could not be taxed as revenue receipt.--Assessee, involved in manufacturing of soft drink/juice based concentrates, had received sales tax subsidy from State Government for setting up a new project. AO taxed the same as revenue receipt.Held: The purpose for which subsidy is given assumes more significance, rather than the manner in which it has been given. Merely because here in this case the quantification of subsidy was based on reimbursement of sales tax, it does not meant that it is a revenue receipt. Subsidy was given by State Government for the purpose of industrialization of State which was available only to new units or to existing units which were initiating substantial expansion. Accordingly, subsidy received by assessee under State Government incentive Scheme was capital in nature and could not be taxed as revenue receipt. Income Tax Act, 1961 Section 4 *REFERRED :* FAVOUR : In assessee's favour. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2018 TaxPub(DT) 7503 (Del-Trib) : (2019) 197 TTJ 0393

PepsiCo India Holdings (P.) Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Transfer pricing--International transactionAMP expenses ----As there was no arrangement/agreement between assessee and AE to incur AMP expenses and no benefit having any kind of bearing on profits and assets, etc., accrued to AE from AMP expenses incurred by the assessee. Therefore, incurrance of AMP expenses could not be treated as an international transaction warranting ALP adjustment.--Assessee, involved in manufacturing of soft drink/juice based concentrates, had obtained licence from AE based at US to exploit brand owned by its AE. It incurred huge advertising marketing and promotional (AMP) expenses to promote AE's trademark. TPO treated this as an international transaction and suggested ALP adjustment.Held: There was no arrangement/agreement between assessee and AE to incur AMP expenses. Further, as per FAR analysis no benefit having any kind of bearing on profits and assets, etc., accrued to AE from AMP expenses incurred by the assessee. Therefore, incurrance of AMP expenses could not be treated as an inernational transaction and no ALP adjustment was called for.

Income Tax Act, 1961 Section 92B

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07 to 2013-14

INCOME TAX ACT, 1961

--Transfer pricing--Determination of ALPInterest on outstanding receivables from AE----As there was a complete uniformity in the act of assessee in not charging interest from both AEs and non-AEs debtors for delay in realization of export proceeds, hence, TPO could not make adjustment on account of notional interest on delayed receivables, because similar credit period was given to both related and unrelated parties.--Assessee entered into transactions with its AE abroad. TPO suggested ALP adjustment on account of notional interest on outstanding from trade receivables AE. Held: As there was a complete uniformity in the act of assessee in not charging interest from both AEs and non AEs debtors for delay in realization of export proceeds, hence, TPO could not make adjustment on account of notional interest on delayed receivables, because similar credit period was given to both related and unrelated parties.

Income Tax Act, 1961 Section 92C

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07 to 2013-14

INCOME TAX ACT, 1961

--Business expenditure--Payment of sponsorship fee to ICC----It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. As such incurring of expenditure was ostensibly for promotion of business only and hence, no disallowance was called for.--Assessee involved in manufacturing of soft drink/juice based concentrates claimed deduction of sponsorship fee paid to ICC. AO disallowed the same as non-business expenditure. Held: It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. As such incurring of expenditure was ostensibly for promotion of business only and hence, no disallowance was called for.

Income Tax Act, 1961 Section 37(1)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07 to 2013-14

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt income----It is only when assessee is able to substantiate its claim from the nature of exempt income from and having regard to accounts maintained and nature of expenditure debited that nothing is attributable for earning of exempt income, the onus stands discharged to claim no disallowance under section 14A. As it was not so in the instant case, AO was justified in making disallowance.--Assessee earned huge dividend income claimed as exempt. AO invoked section 14A read with rule 8D and worked out disallowance. Assessee's case was that no expenditure could be said to be attributable to earning of exempt income.Held: It is only when assessee is able to substantiate its claim from the nature of exempt income from and having regard to accounts maintained and nature of expenditure debited that nothing is attributable for earning of exempt income, the onus stands discharged to claim no disallowance under section 14A. As it was not so in the instant case, AO was justified in making disallowance.

Income Tax Act, 1961 Section 14A

Relied: Maxopp Investment Ltd. v. CIT [Civil Appeal Nos. 104-109 of 2015, dt. 12-2-2018] : 2018 TaxPub(DT) 1403 (SC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2006-07 to 2013-14

INCOME TAX ACT, 1961

--Income--Capital or revenue receiptSales tax subsidy ----Subsidy was given by State Government for the purpose of industrialization of State which was available only to new units or to existing units which were initiating substantial expansion. Accordingly, subsidy received by assessee under State Government incentive Scheme was capital in nature and could not be taxed as revenue receipt.--Assessee, involved in manufacturing of soft drink/juice based concentrates, had received sales tax subsidy from State Government for setting up a new project. AO taxed the same as revenue receipt.Held: The purpose for which subsidy is given assumes more significance, rather than the manner in which it has been given. Merely because here in this case the quantification of subsidy was based on reimbursement of sales tax, it does not meant that it is a revenue receipt. Subsidy was given by State Government for the purpose of industrialization of State which was available only to new units or to existing units which were initiating substantial expansion. Accordingly, subsidy received by assessee under State Government incentive Scheme was capital in nature and could not be taxed as revenue receipt.

Income Tax Act, 1961 Section 4

REFERRED :

FAVOUR : In assessee's favour.