IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `I' NEW DELHI
BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER
AND
SHRI A. T. VARKEY, JUDICIAL MEMBER
ITA No. 4584/Del/2011
(ASSESSMENT YEAR-2007-08)
M/s Amadeus India Pvt. Ltd., Vs Additional Commissioner of Income
E-9, Connaught Hose, Connaught Tax, Range-1,
Place New Delhi-110001
New Delhi-110001
(APPELLANT) (RESPONDENT)
PAN No. AAACA0364L
Assessee by: Shri M. S. Syali & Shri Tarandeep Singh
Revenue by: Shri Yogesh Kumar Verma
Date of Hearing 5.3.2014
Date of Pronouncement 6.3.2014
ORDER
PER R. S. SYAL, AM:
This appeal by the assessee arises out of the order dt.
29.8.2011 passed by the Assessing Officer u/s 143(3) r.w.s
144C(13) of the Income-tax Act, 1961 (Act) in relation to the
assessment year 2007-08.
2. The only issue raised in this appeal through various grounds
is against the making of addition of Rs. 33,52,43,720/- by the AO
on account of transfer pricing adjustment towards AMP expenses.
2 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
3. Briefly stated the facts of the case are that the assessee is
engaged in the business of providing data processing and related
services to its Associated Enterprises (AEs). It is responsible for
providing software access to the `Subscribers' of the Amadeus
products and computer database within the Indian subcontinent. Its
territory includes India, Bangladesh and Nepal. The main activity
of the assessee is to provide connectivity to host system by
creation/modification/up-gradation of computer programmes
online. The assessee has a data processing centre which provides
services to its A.Es. through Subscribers (mostly travel agents).
The assessee reported international transactions towards Receipts
and Payments for services provided/received to the tune of Rs.
133,45,52,217/- and Rs. 7,69,13,058/- respectively. In the
computation of total income, the assessee, claimed deduction inter
alia, for a sum of Rs. 58,66,30,490/- designated as `Selling
expenses'. The detail of such expenses has been set out on page
10 of the order passed by the Transfer Pricing Officer (TPO). The
largest constituent of such `Selling expenses' is a sum of Rs.
54,75,44,112/- with the nomenclature of `Incentive'. Without
going into elaborate details, it is noticed that the TPO initially
proposed adjustment of Rs. 52,33,73,988/- on account of AMP
expenses. Pursuant to the Direction given by the Dispute
Resolution Panel (DRP), the amount of such adjustment was
reduced by the TPO to Rs. 33,52,43,720/-. It is this amount for
3 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
which the Assessing Officer made addition in the final order
passed u/s 144C(13). The assessee is aggrieved against this
addition on account of transfer pricing adjustment.
4. We have heard the rival submissions and perused the relevant
material on record. The Special Bench of the Tribunal in LG
Electronics India Pvt. Ltd. Vs ACIT (2013) 140 ITD 41 (Delhi)(SB)
considered a similar issue of transfer pricing adjustment on
account of AMP expenses. Insofar as we are concerned with the
present appeal, the Special Bench, by its majority view, held that
there is a `Transaction' between the assessee and its foreign A.E
under which it incurred AMP expenses towards promotion of
brand legally owned by the foreign entity. It also held that such
`Transaction' falls within the ambit of `International transaction'.
While upholding the application of `Cost plus method' as the most
appropriate method for determining the ALP of AMP expenses, the
Special Bench held that the component of `Cost' under this method
should be determined by applying the `Bright Line Test'. Certain
parameters have been laid down by the Special Bench in para 17.4
of its order and the AO/TPO was directed to consider the
cumulative impact of such factors before deciding the question of
transfer pricing adjustment on account of AMP expenses.
5. The contentions raised by the ld. AR in the present appeal
that there is no `transaction' on account of AMP expenses and if it
4 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
is a `transaction', then it is not an `international transaction',
stand rejected in the light of the mandate of the Special Bench
order. The further contention about the application of `Bright Line
Test' as a method for determining the ALP is also misconceived
which is hereby repelled in view of the decision in LG Electronics
India Pvt. Ltd. (supra). Respectfully following the Special Bench
decision, we set aside the impugned order and remit the matter to
the file of A.O/TPO with a direction to redo the determination of
TP adjustment, if any, on account of AMP expenses by considering
the relevant factors as noted in such order.
6. The ld. AR submitted that the A.O/TPO erred in considering
the amount of `Incentive' at Rs. 54.75 crore in the AMP expenses
totaling Rs. 58.66 crores. It was argued that such amount should be
excluded at the very threshold from the total AMP expenses for the
purpose of consideration in the light of the Special Bench order in
LG Electronics India Pvt. Ltd. (supra). It was explained that such
`Incentive' was nothing but commission passed on by the assessee
to its Subscribers, through whom the entire business was
generated. The ld. AR explained that the assessee entered into
agreement with various `Subscribers', mostly travel agents, who
made the bookings through the assessee's network. It was
explained that the assessee was to receive 44% of the Revenue
from its foreign A.E in the second year of Agreement on account
5 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
of bookings effected through such subscribers and, in turn, the
assessee was obliged to pass over a part of the gross amount
received from its A.E to such subscribers. A copy of the sample
agreement with M/s Gaurav Travels Pvt. Ltd., one of the
subscribers, was placed on record. It was shown that vide clause 4
of this Agreement, the assessee agreed to pay to the subscriber a
Loyalty Incentive on the segments booked by him. It was
explained that the entire amount of `Incentive' totaling Rs. 54.74
crore represented such amounts paid to various subscribers
throughout the country who booked the tickets etc. through the
network of the Amadeus Group. It was argued that since this
expenditure of incentive was in the nature of `selling expense' and
not `sale promotion expense', the same was required to be
excluded from the total amount of AMP expenses for consideration
by the A.O in the fresh proceedings in line with the Special Bench
order. Per contra, the ld. DR argued that such amount of
`Incentive' could not be reduced from the total AMP expenses as it
was for providing incentive to the customers to remain attached
with the assessee, which indirectly boosted the brand.
7. After considering the rival submissions and perusing the
relevant material on record, we find that the Special Bench in LG
Electronics India Pvt. Ltd. (supra) has held in para 18.3 of its order
that AMP expenses refer only to advertisement, marketing and
6 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
publicity. Appreciating the distinction between `expenses for the
promotion of sales' on one hand and `expenses in connection with
the sales' on the other, the Tribunal held that the first category of
expenses lead to brand building but the second category which are
sale-specific expenses should be reduced from the base of AMP
expenses.
8. Adverting to the facts of the instant case we find from para
7.13 of the TPO's order that the assessee stated that a sum of Rs.
54.75 crore was incurred on `Incentive' which was passed on to the
subscribers. The nature of this incentive has not been disputed by
the TPO or for that matter by the DRP. The TPO himself observed
that; `The nature and purpose of providing incentive to subscribers
is to generate more revenue from Amadeus Global'. The nature of
this incentive has also been discussed by the DRP in para 4.2.2 and
4.2.3 of its order by observing that it was towards incentive to
travel agents. In the light of the above facts, the position which
emerges is that the assessee paid a sum of Rs. 54.75 crore to the
subscribers who actually got made bookings for their customers
through the network of Amadeus group. But for the payment of
such incentive, the subscribers had no interest in dealing with the
assessee. As the revenue generated from bookings done by the
subscribers is the major source of the assessee's income from its
A.E, such `Incentive' to the subscribers cannot be viewed as
7 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
anything other than `Selling expense' which is liable to excluded
from the total AMP expenses as per the decision given by the
Special Bench in LG Electronics India Pvt. Ltd. (supra). It is
further noticed that the Delhi Bench of the Tribunal in Whirlpool
India Pvt. Ltd. Vs DCIT (ITA No. 426/Del/2013) has held vide its
order dated 13.1.2014 that the discount and incentive passed by the
assessee to its dealers and distributors on effecting the sales was
required to be excluded from the total AMP expenses for the
purposes of determination of ALP in respect of AMP expenses.
The facts and circumstances of the instant case are more or less
similar to those in the case of Whirlpool India Pvt. Ltd. (supra). In
view of the foregoing discussion, we hold that incentive
amounting to Rs. 54.75 crore should be deducted from total AMP
expenses of Rs. 58.66 crores and the remaining amount of Rs. 3.91
crores should be considered by the Assessing Officer for a fresh
determination of its ALP as per the guidelines laid down in LG
Electronics India Pvt. Ltd. (supra).
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 6/3/2014.
Sd/- Sd/-
(A. T. VARKEY) (R. S. SYAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 6/3/2014
*Subodh*
8 ITA No. 4584/Del/2011
Amadeus India Pvt. Ltd.
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR
Initial
Date
1. Draft dictated on 5.3.2014 PS
2. Draft placed before author 5.3.2014 PS
3. Draft proposed & placed before the second JM/AM
member
4. Draft discussed/approved by Second Member. JM/AM
5. Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
7. File sent to the Bench Clerk PS
8. Date on which file goes to the AR
9. Date on which file goes to the Head Clerk.
10. Date of dispatch of Order.
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