Dy. CIT v. Cheil Communications India (P) Ltd.

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The Tax PublishersIT A No. 712/Del/2010 2011 TaxPub(DT) 1099 (Del-Trib) : (2011) 137 TTJ 0539 : (2010) 048 DTR 0289 Dy CIT v. Cheil Communications India (P) Ltd. INCOME TAX ACT 1961 Transfer pricing - Computation of ALP -Applicability of TNMM Assessee-company was engaged in business of advertising, communication, publicity etc. As part of its business operation, assessee facilitated placement of advertisement for its AE in print/electronic, etc., media and for that purpose, assessee was required to make payment to third parties for rendering of advertisement space on behalf of its customers or AEs .Assessee thus acted as an intermediary between ultimate customer and third party vendor in order to facilitate placement of advertisement. Assessee had applied TNM method to determine ALP, which had also been accepted by Revenue authorities. Assessee had computed margin of operating profit on total cost on basis of net revenue by way of mark-up received from associate concern. In other words, payment made by assessee to third party vendor/media agencies for and on behalf of principal had not been included in total cost for determining profit margin, though, on other hand, TPO had included payment reimbursed by assessees associate enterprise to assessee on account of payment made to third party vendor/media agencies. *Held :* TPO made upward adjustment in ALP determined by assessee which was accepted by Assessing Officer. Commissioner (Appeals) held that no adjustment to declared value of international transactions entered into with AEs was called for and, therefore, directed Assessing Officer to delete addition and question that fell for consideration was with regard to method of computing profit/TC margin whether on gross basis as done by TPO or net basis as worked out by assessee. In this regard, it was apparent from Transfer Pricing Guidelines, 2009, accepted by OECD that a mark-up is to be applied to cost incurred by assessee company in performing its agency function and not to cost of rendering advertising space on behalf of its AEs. Moreover method adopted by assessee based on net revenue had been accepted by Department in earlier year and, therefore, there was no reason to depart from that stand already accepted by Department in earlier year. Income tax act 1961 section 92C Decision : In favour of assessee. A.Y : 2005-06 Case law analysis :CIT v. British Paints India Ltd. [1991] 188 ITR 44 / 54 Taxman 499 (SC); CIT v. Shaik Md. Rowther Shipping & Agencies (P.) Ltd. [2000] 246 ITR 161/[2002] 124 Taxman 79 (Mad.) and Dy. CIT v. Carraro India Ltd. [2009] 28 SOT 53 (Delhi) (URO) (para 44) distinguished. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT A No. 712/Del/2010
2011 TaxPub(DT) 1099 (Del-Trib) : (2011) 137 TTJ 0539 : (2010) 048 DTR 0289

Dy CIT v. Cheil Communications India (P) Ltd.

INCOME TAX ACT 1961

Transfer pricing - Computation of ALP -Applicability of TNMM

Assessee-company was engaged in business of advertising, communication, publicity etc. As part of its business operation, assessee facilitated placement of advertisement for its AE in print/electronic, etc., media and for that purpose, assessee was required to make payment to third parties for rendering of advertisement space on behalf of its customers or AEs .Assessee thus acted as an intermediary between ultimate customer and third party vendor in order to facilitate placement of advertisement. Assessee had applied TNM method to determine ALP, which had also been accepted by Revenue authorities. Assessee had computed margin of operating profit on total cost on basis of net revenue by way of mark-up received from associate concern. In other words, payment made by assessee to third party vendor/media agencies for and on behalf of principal had not been included in total cost for determining profit margin, though, on other hand, TPO had included payment reimbursed by assessees associate enterprise to assessee on account of payment made to third party vendor/media agencies. Held : TPO made upward adjustment in ALP determined by assessee which was accepted by Assessing Officer. Commissioner (Appeals) held that no adjustment to declared value of international transactions entered into with AEs was called for and, therefore, directed Assessing Officer to delete addition and question that fell for consideration was with regard to method of computing profit/TC margin whether on gross basis as done by TPO or net basis as worked out by assessee. In this regard, it was apparent from Transfer Pricing Guidelines, 2009, accepted by OECD that a mark-up is to be applied to cost incurred by assessee company in performing its agency function and not to cost of rendering advertising space on behalf of its AEs. Moreover method adopted by assessee based on net revenue had been accepted by Department in earlier year and, therefore, there was no reason to depart from that stand already accepted by Department in earlier year.

Income tax act 1961 section 92C

Decision : In favour of assessee.
A.Y : 2005-06

Case law analysis :CIT v. British Paints India Ltd. [1991] 188 ITR 44 / 54 Taxman 499 (SC); CIT v. Shaik Md. Rowther Shipping & Agencies (P.) Ltd. [2000] 246 ITR 161/[2002] 124 Taxman 79 (Mad.) and Dy. CIT v. Carraro India Ltd. [2009] 28 SOT 53 (Delhi) (URO) (para 44) distinguished.