INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Management charges towards management support services paid to AE - TPO determined nil ALP alleging no benefit

Assessee availed of management services from various enterprises including its AE abroad. TPO determined ALP of management fee paid to AE at nil alleging that assessee failed in benefit test. Held: Assessee availed of management services not only from the AE but from other companies also and payments to such other companies were not disputed by TPO. On one hand, TPO accepted the claim of management services paid to other companies but doubted only payment made to AEs. Alleged management services were merely 2% of the total revenue of the company and the said sum paid by assessee was also offered to tax by AE. Also, the nature of services rendered by AE to assessee was not specific but provided on day to day basis whenever needed. The AE had expertise in the overseas freight and forwarding business and there were various types of issues and problems attached in such services and AE being an expert in the international business assessee was taking regular service through the personnel of AE to get guidelines on various fronts including marketing, commercial management, corporate sales, invoicing, finance, other connected issues on various courses. For day-to-day smooth and effective working of business and for trying to keep an error free working environment, such management support services were taken. In the past also, during the assessment years 2010-11 and 2011-12 such services have been taken and had been consistently charged in the books of account. The observation of TPO was not specific but general in nature that the assessee has failed on the benefit test but nowhere any specific instance was given to show that the so-called services taken by assessee company from its AE under various agreements were not related to the nature of business carried on by assessee. Therefore, TPO was not justified in determining ALP at 'Nil'.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

SUBSCRIBE FOR FULL CONTENT