Le Passage To India Tour & Travels (P) Ltd v. The Deputy Commissioner Of Income Tax

$~1 & 2 IN THE HIGH COURT OF DELHI AT NEW DELHI % Decided on 12.01.2017 +ITA 368/2016 LE PASSAGE TO INDIA TOUR & TRAVELS (P) LTD.... Appellant Through: Mr. Ajay Vohra, Senior Adv. with Mr.Neeraj Jain and Mr. Aniket D. Agrawal, Advs. versus + THE DEPUTY COMMISSIONER OF INCOME TAX.... RespondentThrough:Mr.AshokManchandaandMr.Raghvendra Singhj, Advs.Through:Mr.AshokManchandaandMr.Raghvendra Singhj, Advs. ITA 369/2016 LE PASSAGE TO INDIA TOUR & TRAVELS (P) LTD.... AppellantThrough: Mr. Ajay Vohra, Senior Adv. with Mr.Neeraj Jain and Mr. Aniket D. Agrawal, Advs.Through: Mr. Ajay Vohra, Senior Adv. with Mr.Neeraj Jain and Mr. Aniket D. Agrawal, Advs. versus THE DEPUTY COMMISSIONER OF INCOME TAX.... RespondentThrough:Mr.AshokManchandaandMr.Raghvendra Singhj, Advs.Through:Mr.AshokManchandaandMr.Raghvendra Singhj, Advs. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRI S. RAVINDRA BHAT (Oral) 1.The questions of law that arose for consideration in theseappeals were framed on 27.07.2016. The facts of the case pertain toAssessment Year (A.Y.) 2009-10 and A.Y. 2010-11.The Transfer Pricing Officer (“T.P.O.”) and the Assessing Officer (“A.O.”) were of the opinionthat the Assessee’s returns for AYs 2009-10 and 2010-11 whichreported international transactions (with respect to inbound business)also showed the existence of outbound travel business. This decisioninter aliawas based upon the substantial AMP expenditure to thetune of `1.22 crores reported by the Assessee in respect of theoutbound business for the A.Y.s 2009-10 and 2010-11. The DisputeResolution Panel (“D.R.P.”) also concurred with the views of theA.O., both with respect to the existence of the outbound business aswell as applicability of the AMP determination method, i.e.,Advertisement,MarketingandPromotionexpenditure(“AMPexpenditure”). The Income Tax Appellate Tribunal (“I.T.A.T.”), afterconsidering the submissions of the parties, remitted the issue withrespect to the determination of AMP in the outbound segment, to theA.O.The Assessee, therefore, is aggrieved and contends that theI.T.A.T.’s decision, based upon an assumption of existence ofoutbound business being an international transaction, is erroneous.2.The Court notices that all the tax authoritiesconsistentlyapplied the “bright line method” which was applicable at that timeenunciated by I.T.A.T.’s Special Bench in L.G. Electronics (India)Pvt. Ltd. vs. ACIT [2013] 22 ITR 1 (SB) (Del) (Trib.). That decisionwas, however, overturned by a Division Bench of this Court in SonyEricsson Mobile Communications India Pvt. Ltd. v. CIT [2015] 374ITR 118 (Del).3.The Revenue had contended that the question of law was answered by referring to the discussion of the I.T.A.T. in theimpugned judgment. The learned counsel for the Assessee, however,had resisted this submission and contended that the question wassquarely raised in the grounds of the appeal both, before the D.R.P.and the I.T.A.T. but the I.T.A.T. acceded to assume the existence ofan international transaction. answered by referring to the discussion of the I.T.A.T. in theimpugned judgment. The learned counsel for the Assessee, however,had resisted this submission and contended that the question wassquarely raised in the grounds of the appeal both, before the D.R.P.and the I.T.A.T. but the I.T.A.T. acceded to assume the existence ofan international transaction. 4.This Court is of the view that whilst L.G. Electronics India Pvt.Ltd. (supra) indicated that AMPs were or did constitute the basis foran inquiry into the international transaction and indicated a “brightline” test for it, Sony Ericsson Mobile Communications India Pvt.Ltd.(supra) overruled that decision. This per se does not mean thatevery endeavour will be to conclude that all transactions reportingAMPs are to be treated as international transactions, the facts of eachcase would have to be examined for some deliberations. Whilst theTPO and the DRP undoubtedly held that the international transactionsexisted- that understanding apparently was passed upon the pre-existing regime, propounded in L.G. Electronics India Pvt. Ltd.(supra) with greater clarity on account of this Court’s decision in SonyEricsson Mobile Communications India Pvt. Ltd.(supra).TheI.T.A.T. in our opinion, should have first decided whether in thecircumstances of this case, the nature of the AMP reported, could leadto the conclusion that there was an international transaction. Whendoing so, it should have remitted the matter back for examination tothe A.O. in this case. Accordingly, following the decision of SonyEricsson Mobile Communications India Pvt. Ltd.(supra) and asubsequent decision in Daikin Airconditioning India Pvt. Limited v. Assistant Commissioner of Income Tax in ITA 269/2016, decided on27.07.2016, this Court hereby remits the matter for a comprehensivedecision by the I.T.A.T.In other words, the I.T.A.T. will decidewhether the reporting of the AMP in regard to the outbound businessconstitutes an international transaction for which ALP determinationwas necessary and if so, the effect thereof. The parties are directed toappear before the I.T.A.T. on 01.02.2017.The appeal is partlyallowed in the above terms. S. RAVINDRA BHAT, J JANUARY 12, 2017/acm NAJMI WAZIRI, J