Ita/285/2017 Of Pr Commissioner Of Income Tax-5 v. M/S Page Industries Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 8[TH|]DAY OF JANUARY 2071PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE NATARAJ RANGASW AMYLT.A. NO.285 OF 2017 BETWEEN: 1.|PR. COMMISSIONER OF INCOME TAX-5. BMTC COMPLEX, KORMANGALA BANGALORE. 2.|DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-5(1)(2), BANGALORE. (BY SRI. JEEVAN J. NEERALGI, ADV.,) .., APPELLANTS~ AND* M/S. PAGE INDUSTRIES LTD|ABBAIAH REDDY INDUSTRIAL AREAJOCKEY CAMPUS, NO.6/2 & 6/4HONGASANDRA, BEGUR HOBLIBANGALORE-560068 PAN: AABCP2ZK630D. ~. RESPONDENT (BY SRI. CHYTHANYA K.K. ADV.) THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 24.06.2016 PASSEDIN IT(TP)A NO.163/BANG/2015 FOR THE ASSESSMENT YEAR2010-11 VIDE ANNEXURE-A, PRAYING TO: — (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT AND SET ASIDE THE! APPELLATE ORDER DATED:24.06.2016 PASSED BY THE ITAT, ‘B’BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEESCASE,IN|APPEAL|PROCEEDINGS|IN|IT(TP)ANo.163/BANG/2015 FOR A.Y.2010-11 VIDE ANNEXURE-A, &GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTERESTOF JUSTICE. THIS|LIACOMING|ONFOR.HEARING,THISDAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (nereinafter referred to as the Act, for snort) nas|been filed by the revenue. The subject matter of the appealpertains to the Assessment Year 2010-11. The appeal wasadmitted by a Bencn of this Court vide order dated|09.11.2018 on the following substantial question of law: “Whetner on tne facts and in the circumstance of the case, the Tribunal ts right in law in|setting aside the disallowance made by'appellate authority under Section 8OJJA of theAct by relying on_ its earlier order in case of|assessee Itself when said earlier order has not|reached finality and even when the appellate|autnority rightlyrejectedSa!claimdS|deduction cannot be given in_ respect ofadditional wages paid on employment of new|workmen auring the previous year 2009-10(Rs.55,99,,873/-) & 2008-09 (Rs. 18,09,043/-) as Form No.1Q0DA certifies the amount ifdeductionatRs.1,11,32,662/-for.theAssessment Year 2010-1]? 3. Facts leading to filing of this appeal briefly stated are’tnat the assessee is a company incorporated under thneprovisions of the Companies Act, 1956 and is engaged in thebusiness of manufacture and sale of ready made garments.The assessee - company is a licensee of the brand name‘Jockey’fortheexclusive andmarketingof|Jockey|readymade garments under license agreement with Jockey|International Inc, a company incorporated in United States of America which is the owner of brand Jockey. In order tocollect the brand name, the assessee paid consideration inthe form of royalty at the rate of 5% of the sales. Theassessee filed return of income for the Assessment Year2010-11 on 05.10.2005 and declared the total income ofRs.55,25,65,514/-. The Assessing Officer, by an order dated03.02.2014, processed the return. Thereafter, the case of |the assessee was taken up for scrutiny and notice underSection 143(2) of the Act was issued. The Assessing Officer,during the course of the proceedings, found that the| aSSCSSCECCompanynadreturned)tneinternational transaction In.Form 3SCEBand.paidroyalty|Of|Rs.6,78,29,024/- to JI]. The assessee sought to justify theconsideration paid to international transactions entered withJII to be at arm's Jength. aSSCSSCECCompanynadreturned)tneinternational transaction In.Form 3SCEBand.paidroyalty|Of|Rs.6,78,29,024/- to JI]. The assessee sought to justify theconsideration paid to international transactions entered withJII to be at arm's Jength. 4. The Assessing Officer thereafter referred the matterto the Transfer Pricing Officer, who by an order dated30.01.7014Interaliacomputedthetransferpricingadjustment at Rs.20,20,0/7,861/- under Section 92CA(3) ofthe Act. The Transfer Pricing Officer treated the expenditureincurred on the advertisement and marketing and product|promotion as an international transaction and determined thearms length price by applying bright line method. Pursuantto the order passed by the Transfer Pricing Officer, a draft|assessment order was passed by the Assessing Officer, bywhich disallowance to the extent of adjustment on account oftransfer.pricingRs.20,20,0/7,861/-,disallowance under.Section 14A read with Rule 8D(2)(ili) to the extent of|Rs.20,51,175/- and disallowance of Rs./74,08,964/- under theprovisions of Section 80JJAA of the Act were proposed. The assessee thereupon filed objections before the DisputeResolution Panel contesting all the additions. Tne DisputeResolution Panel, however rejected the objections preferredby the assessee. Tne assessee thereupon filed an appealbefore the Income Tax Appellate Tribunal (hereinafter|referred to as the Tribunal for short). Tne Tribunal, by anorder dated 24.06.2016,|inter alia held that since therequirements laid down in Section 92A(1) has not beenfulfilled, therefore, the provisions of Section 92A are notattracted to the fact situation of the case. To the aforesaidextent, the appeal preferred py the assessee was allowed. Inthe aforesaid factual background, the revenue has filed thisappeal.| 5. Learned counsel for the revenue submitted tnat tne|transactions entered into by the assessee nave to be treatedas an international transaction. In this connection, ourattention has been invited to paragrapn 3.1.3 and paragrapn3.1.4 of the order passed by the Transfer Pricing Officer. Itwas further submitted that the order passed by the TransferPricing Officer has been affirmed by the Dispute Resolution Panel. However, the Tridunal has partly allowed the appealpreferred by the assessee merely on the ground that theassessee cannot be said to be an associated enterprise andtnerefore, the requirements of Section 92A(1) have not beencomplied with. Therefore, the provisions of Section 92A arenot applicable to the transaction in question and therefore,|the same cannot be treated to be an_itnternationaltransaction. It is further submitted that the provisions ofSection 92A(1) and (2) nave to be read independently and|since the case of the assessee falls within the purview ofSection 92A(2)(g) of the Act, therefore, the transaction inquestion has to be held as an international transaction andtherefore, the Tribunal ought to have held that the provisionsof Section 92A are applicable to the case of the assessee. 6. On the other hand, learned counsel for the assesseenas invited our attention to the memorandum of tne FinanceBill, 2002, in which clarification regarding provisions oftransfer pricing has been mentioned. It is further submittedthat the Tribunal has relied on the judgment of AnmedabadBench of the Tribunal, which had held that sub-Sections 1 and 2 of Section 92A have to be read together and theaforesaid order passed by the Tribunal has been upheld byGujarat High Court in"PRL, COMMISSIONER OF INCOMETAX-CENTRAL Vs. VEER GEMS (2017) 249 TAXMAN264 (GUJ).Against the decision of Gujarat High Court,|special leave petition was preferred by the revenue wnicnwas dismissed in‘PRL, COMMISSIONER OF INCOME TAX- 6. On the other hand, learned counsel for the assesseenas invited our attention to the memorandum of tne FinanceBill, 2002, in which clarification regarding provisions oftransfer pricing has been mentioned. It is further submittedthat the Tribunal has relied on the judgment of AnmedabadBench of the Tribunal, which had held that sub-Sections 1 and 2 of Section 92A have to be read together and theaforesaid order passed by the Tribunal has been upheld byGujarat High Court in"PRL, COMMISSIONER OF INCOMETAX-CENTRAL Vs. VEER GEMS (2017) 249 TAXMAN264 (GUJ).Against the decision of Gujarat High Court,|special leave petition was preferred by the revenue wnicnwas dismissed in‘PRL, COMMISSIONER OF INCOME TAX- CENTRAL Vs. VEER GEMS (2018) 256 TAXMAN 298(SC).Therefore, potn the provisions namely sub-Sections(1) and (2) nave to be read together. It is also pointed outfrom the order passed by the Dispute Resolution Panel tnatthe panel itself has recorded a finding that the TransferPricing Officer has gone into the provision of Section 92A(2)of the Act. It is further submitted that the provisions of sub-Sections (1) and (2) of Section 92A are interlinked and havepeenread togetnerNarmoniouslyandtherefore,tnesubstantial question of law framed in this appeal is required|to be answered in favour of the assessee. 7. We nave considered the SUDMISSIONS made on potn sides and have perused the record. From perusal of the Memorandum of Finance Bill, 2002, it is evident that sub-Section (2) of Section 92A was amended with effect from01.04.2002 to clarify that mere fact of participation by oneenterprise in the management or control or capital of theother enterprise, or the participation of one or more persons|in the management or control or capital of both theenterprises shall not make them associated enterprises,unless the criteria specified in sub-Section (2) are fulfilled. 8. Before proceeding further, it is apposite to take noteof relevant extract of sub-Sections (1) and (2) of Section 92Aof tne Act which reads as under: 92A (1) For tne purposes of tnis section andsections 92, 92B, 92C, 92D, 92E and 9Y92F‘associated enterprise’, in relation to another|enterprise, means an enterprise - (a) whicn participates, directly or indirectly, or througn one or more intermediaries, inthe management or control or capital of theotner enterprise; or| (b) in respect of which one or more personswho participate, directly or indirectly, or|througn one ore more intermediaries, in its.management or contro! or capital, are the same persons who participate, directly orindirectly,OF|throughO/NeOF|more|intermediaries,InthemanagementOrcontrol or capital of the other enterprise. (2) For the purposes of sub-section (1), twoenterprises shall be deemed to be_ associatedenterprises if, at any time auring the previous year| (g) the manufacture or processing of goodsor articles or business carried out by one.enterprise is wholly dependent on the use ofKnow-how,patents,copyrignts,trade-marks, licences, francnises or any otherbusiness or commercial rights of similarnature,OFallydata,documentation,arawing or specification relating to anypatent, invention, model, design, secret.formula or process, of whnicn the otnerenterprise is the owner or in respect ofwnicn the otner enterprise nas exclusive|rignts; or- 9. Thus, from perusal of the aforesaid provisions, it isevident that sub-Sections (1) and (2) of Section 92A of theAct are interlinked and nave to be read togetner. In case the provisions.of|SuUD-SectIion(1)and.(2)areread independently, we are afraid that one of the provisions wouldbe rendered otiose which is impermissible in law in view oftne well settled rule of statutory limitation. Tnerefore, therequirement contained in sub-Sections (1) and (2) of Section92A of the Act has to be complied with. It is also pertinent tomention here that the finding recorded by the Tribunal thatthe assessee has not complied with the provisions of sub-Section (1) of Section 92A of the Act, nas not been assailedby tne revenue. 9. Thus, from perusal of the aforesaid provisions, it isevident that sub-Sections (1) and (2) of Section 92A of theAct are interlinked and nave to be read togetner. In case the provisions.of|SuUD-SectIion(1)and.(2)areread independently, we are afraid that one of the provisions wouldbe rendered otiose which is impermissible in law in view oftne well settled rule of statutory limitation. Tnerefore, therequirement contained in sub-Sections (1) and (2) of Section92A of the Act has to be complied with. It is also pertinent tomention here that the finding recorded by the Tribunal thatthe assessee has not complied with the provisions of sub-Section (1) of Section 92A of the Act, nas not been assailedby tne revenue. 10. In view of preceding analysis, the substantial|question of law is answered against the revenue and infavour of the assessee. In the result, the appeal fails and is hereby dismissed. Sd/-JUDGE Sd/-—JUDGE AAJ& NRJ:24.02.7027 I.T.A.No.285/201/7 ORDER ON I1.A.NO.1/202 HeardMr.Sharath,learned.counsel|for.theaSSe@SSAEC Mr.E.I.Sanmathi, learned counsel for the revenue. Learned counsel for the assessee submits thaton account of inadvertence, substantial question of |law has wrongly been mentioned in the judgmentdated 08.01.2021 passed in I.T.A.No.285/2017 and |the same should be read as under': (1)WhetherOP)thefacts|andIn|thecircumstances of the case, the Tribunal is right inNolaing tnat the JII - Company its not AE of assesseeCompany and as sucn the transfer pricing aajustmentnas to be set aside even when the said company Isdeemed to be AEs as per Section 92A (2)(g) of the Act|as the assessee’s business for A.Y. 2010-11 is only ofJockey Products which is completely dependent onKnow-how,trade-marksand|licensesofJointInternational Inc (JII)?° After hearing learned counsel for the parties, it isdirected that in the judgment dated 08.01.2021passed in I.T.A.No.285/2017 instead of substantialquestionoflawquotedtherein,|thesubstantial |question of law referred to above shall be read. This order shall be read in conjunction with thejudgmentpassed.In|I.T.A.No.285/2017|dated|08.01.70271. Accordingly, I.A.No.1/2021 is disposed of. Sd/- JUDGE Sd/-'| JUDGE|