Mere Usage of Name of Parent Company in the Transaction Does not make the Same as the International Transaction
Akhilesh Kumar Sah
In this write up, the learned author aims at discussing an aspect of law as to whether mere usages of foreign word viz. the name of parent company in a transaction is sufficient or not so as to make such a transaction within the ambit of section 92B to be regarded as an international transaction or other factors too have to be looked into, for example, name of assessee vis--vis products manufactured by assessee, Section 92B(1) defines the term ' international transaction' to mean transaction between AEs of assessee. In view of a recent decision of ITAT, Kolkatta in organon's case which was affirmed by Kolkata High Court, he concludes that Simply a usage of foreign word does not make it automatic to fall within the ambit of an international transaction unless otherwise proved.
In PCIT v. Organon (India) Pvt. Ltd. [ITAT/16/2020 IA No. GA/2/2022 (Old No. GA/689/2020)] decided by Kolkata High Court on 13-3-2023, it has been held that the Tribunal rightly held that the usage of the word 'Organon' as the name of the assessee in India is immaterial and what would be material is the products manufactured by the assessee, and not the company which manufactures. The Tribunal also rightly held that, mere usage of foreign word does not make it automatic to fall within the ambit of an international transaction.
Recently, in Philips India Ltd (formerly known as Philips Electronics India Ltd.) v. ACIT [ITA No. 2489/Kol/2017 (A.Y. 2013-14)] decided by ITAT, Kolkata on 4-4-2018, one of the grounds raised by assessee regarding the determination of Arm's Length Price (for short, 'ALP') for Advertisement and Marketing (for short, 'AMP') expenses and Rule of Consistency was that Assessing Officer (for short, 'AO'), Dispute Resolution Panel (for short 'DRP') and Transfer Pricing Officer (for short, 'TPO') erred on facts and in law, in making an adjustments towards, alleged excess AMP expenses incurred by appellant and construed such expense as brand promotion for the parent Associated Enterprises (for short, 'AEs') and AO, DRP and TPO erred on facts and in law in not appreciating that expenditure on AMP unilaterally incurred by the appellant in India could not be regarded as an international transaction as per section 92B of the Income Tax Act, 1961 (for short, 'the Act'), so as to invoke the provisions of section 92 of the Act.
2. Facts of the above mentioned case in brief
The assessee in the case, being a part of the Royal Philips Organisation, headquartered in Netherlands, the ultimate parent company of the group was Koninklijke Philips Electronics NV (for short, 'KPENV'). Royal Philips Electronics of the Netherlands, being a diversified health and well being company, was organized into the following product divisions:
(i) Philips Consumer Electronics: This division develops, manufactures and markets a wide range of television, audit, video, communications and interactive media systems.
(ii) Philips Domestic Appliance and Personal Care: This division makes a wide range of electrical products for personal care and household convenience.
(iii) Philips Lighting: This division is the global leader in lamps, luminaries, lighting electronics, automotive lighting, special lighting, UHP & LCD backlighting and lumileds.