M/S.hyundai Motor India Ltd.,Plot No.h-1, Sipcot Industrial Park,Irungattukottai, Sriperumbudur Taluk,Kanchipuram - 602 117 v. The Deputy Commissioner Of Income Tax, Transfer Pricing Officer - 2 (1), Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS DELIVERED ON : 16.09.2020 CORAM THE HON'BLE MR.JUSTICE M.M.SUNDRESH andTHE HON'BLE MRS.JUSTICE R.HEMALATHA WA.No.2104 of 2018andCMP.No.16496 of 2018 M/s.Hyundai Motor India Ltd.,Plot No.H-1, SIPCOT Industrial Park,Irungattukottai, Sriperumbudur Taluk,Kanchipuram - 602 117. ... Appellant Vs. 1. The Deputy Commissioner of Income Tax, Transfer Pricing Officer - 2 (1), Room No.506, 5th Floor, Tower - I, BSNL Building, No.16, Greams Road, Chennai - 600 006. 2. The Deputy Commissioner of Income Tax (LTU), 7th Floor, Income Tax Main Building (Aayakar Bhawan), 121 Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034. ... Respondents Prayer: Writ Appeal filed under Clause 15 of Letters Patentpraying to set aside the order in WP.No.22508 of 2017 dated16.07.2018 and allow the above writ appeal. Filed under Article 226 of the Constitution of Indiapraying to issue a writ of Certiorarified Mandamus to quash thegiving effect order F.No.H-201 / TPO - 2/ A.Y.2008-09 dated27.03.2017 issued by the 1st respondent and to issue directionsto the 1st respondent to give proper and specific effect to theorder of the ITAT in Miscellaneous Petition No.93 / Mds / 2016in ITA No.2353 /Mds / 2012 dated 06.09.2016 https://hcservices.ecourts.gov.in/hcservices/ For Appellant:Mr.R.V.Easwar, Senior counsel for Mr.SP.Chidamvaram & Mr.Rubal Bansal For Respondents:M/s.Hema Muralikrishnan (Order of the Court was made by R.HEMALATHA, J.)This appeal is against the final order passed inWP.No.22508 of 2017 dated 16.07.2018. 2. The facts of the case briefly are summarized below. Theappellant company is engaged in the business of manufacturing,selling and servicing passenger vehicles and related spare parts/ CKD parts in the domestic as well as overseas markets. Theassessee / appellant company (M/s.Hyundai Motors India Ltd) hasexclusive rights of the Holding company (M/s.HMC Korea) abroadto produce cars in this country. The brand name and logo arethe Holding Company's property while the end product is made inIndia. The matter of dispute is in the e-return filed for theassessment year 2008-2009 in which the first respondent as theTransfer Pricing Officer (TPO) found the royalty paid by theassessee / appellant company to the Holding Company was higher(3.47%) than the average royalty rates of four comparablecompanies (2.54%) thus concluding that the Arm's length price ofthe royalty paid was in excess and therefore Rs.106.67 croreswas disallowed ie., in other words added to the taxable income.The Draft Assessment Officer passed the order under Section143/3 of IT Act read with Section 92 CA. The assessee /appellant company filed its objections in form 35 A before theDispute Resolution Panel (DRP), Chennai which rejected theobjections. A rectification petition was filed before the DRPdisputing the inconsistency in arriving at the royalty expenses.However, the final assessment order was passed on 29.10.2012without considering the objections of the assessee / appellantcompany. An appeal in form 36 B was filed by the assessee /appellant company with the Income Tax Appellate Tribunal (ITAT).The Dispute Resolution Panel (DRP) issued revised order statingthat certain mistake had crept in while calculating theadjustment and consequently the disallowance was scaled downfrom Rs.106.67 crores to Rs.86.88 crores. ITAT upheld thisrevised adjustment order of the DRP. Subsequently, aMiscellaneous Petition was filed by the appellant company beforeITAT on 12.05.2016 which prompted the ITAT to correct and modifyits earlier order and direct the TPO to verify whether thepetitioner's rate of royalty payment is lesser than the rateprevailing in the industry. The TPO which revisited the royaltypayment part opined that the assessee / appellant company reliedon Wikipedia and not any authentic source to substantiate its contentions regarding the average royalty rate in the Industryand therefore, reiterated the decision on the disallowance ofRs.86.88 crores, on account of royalty paid. Irked by thisorder of the TPO, a Writ Petition No.22508 of 2017 was filed bythe assessee / appellant company in which Single Judge of thisCourt dismissed the petition by stating that it was prematureand the assessee / appellant company had not exhausted all theavailable remedies before approaching this Court. Hence, thisappeal against the order of the Single Judge of this Court. 3. The learned senior counsel for the assessee / appellantMr.Rubal Bansal for Mr.S.P.Chidambaram, learned counsel wouldcontend that the Single Judge of this Court had failed toappreciate the fact that the first respondent TPO had twodifferent yardsticks for two different assessment years toarrive at the average royalty paid in the Industry. It wasfurther argued by the learned counsel that while for theassessment year 2007-08, it was accepted by the TPO that royaltyrates called out from the Wikipedia is valid and based on whichthe ITAT had decided in allowing the entire royalty paid asallowance, a different yardstick was adopted this year (2008-09)not allowing the same. This speaks volumes of the arbitrary andillogical reasoning by the TPO. His further contention that theSingle Judge had dismissed the Writ Petition merely because hefelt that the remedies available to the assessee / appellantcompany as IT assessee were not exhausted, is also erroneous.It was also contended that the entire process of appeal in allthe possible forms was undergone only to be referred back to theTPO on the aspect of verifying the actual industrial averageroyalty paid in the automobile sector and whether it is higherthan the royalty paid by the appellant company. The TPO wentmuch beyond the ITAT order thus exposing the lack of any properscientific approach in determining this all important aspect ofArm length price as regards the royalty paid. Further, thedenial of natural justice by the TPO by not issuing a show causenotice aggravated the matter, it was contended. 4. The first respondent represented by the learned counselMrs.Hema Muralikrishnan contended that the former was right indetermining whether the transactions pertaining to the royaltypaid were within Arm's length or not. It was contended that theroyalty paid to sales ratio cannot be constant every year and itwas imperative to make a comparative study with other comparablecompanies. Further contention of the learned counsel was thatthe ITAT had never considered the royalty rates of the Industryfrom the Wikipedia. It was argued that in 2007-08, the TPOherself had mentioned the average royalty of the Industry as 4.7which was higher than the 4.22 of the appellant company. But,the assessees were not able to satisfactorily substantiate thatthe same average rates continued this year also. It was argued that therefore relying on Wikipedia rates to get the average ofthe royalty paid in the Industry is wrong and without anyreasoning. that therefore relying on Wikipedia rates to get the average ofthe royalty paid in the Industry is wrong and without anyreasoning. 5. It is found that in 2007-08, the ITAT had observed thatthe "TPO herself observed that in respect of royalty payment inautomotive sector from the study of 35 licences, the averageworks out to 4.7% which is higher than the royalty payment of4.22% of the assessee company". In the same year, the TPO hadinitially made comparisons like in 2008-09 and concluded thatthe average royalty paid by the 4 comparable companies is 2.36%while the appellant company had paid 4.22% and hence in excessof the Arm's length price by 1.86% of the sales ie., 165.05crores which was restricted to Rs.104.27 crores by the DRPstating two of the comparable companies were not qualifying forthe comparison. In this context, it was mentioned by the DRPthat "the related party transactions were more than 25%" andtherefore removed two of the four comparable companies to arriveat the average. Subsequently, the ITAT allowed the entireRs.104.27 crores based on the observation of the TPO that theroyalty payment by the assessee / appellant was 4.22% which waslesser than the Industry average of 4.70%. 6. It is the specific contention of the learned seniorcounsel that it can be prima facie seen that the firstrespondent does not have a standard procedure to assess theArm's length price. The entire concept of the ALP is to keep acheck on the companies which have their parent company abroadfrom overstating the royalty expenses in order to claimallowance. Thus, the need to make the comparisons morescientific to arrive at the average royalty rates is imperative.In the instant case, it is clear that companies which have beencompared for getting the royalty percentage to sale are notcomparable if the decision by the DRP for 2007-08 is anyindication. Thus, the choice of comparable companies becomescrucial and if companies which cannot be compared are included,the Industry average varies to a great extent. 7. It is also pertinent to mention that in 2007-08,objections were raised by the assessee / appellant not tocompare similar companies, as the royalty payment for onecompany was only for the 'technology' component like in MarutiSuzuki India Ltd., while the royalty payment was for 'technologyand the use of brand' as in assessee / appellant company. Suchinherent deficiencies were pointed out thereby making the entiresystem faulty and fraught with loopholes. 8. Now, it is revealed, during the course of the argumentsthat the TPO's order was accepted by the Assessing Officer andthe final order of assessment was passed in November 2019. It https://hcservices.ecourts.gov.in/hcservices/ is not clear whether the assessee / appellant approached the DRTwith objections against the draft assessment order. Theassessee / appellant ought to have approached the ITAT againstthis final order of assessment. In such circumstances, thisCourt opines that the remedies are available in the system andthe assessee / appellant ought to have approached the ITATbefore approaching this Court, but instead challenged the TPO'sorder in this Court. We may note, even in the first instancethe assessee did the same thing by approaching the Tribunalagainst the final assessment made. Certainly, as done by itearlier, all the issues can be agitated before the Tribunal. 9. In the WP.No.22508 of 2017, in the final order, theSingle Judge had also observed that "this Court is of anundoubted opinion that the writ petitioner has not made out anycase for the purpose of waiving the efficacious alternate remedyavailable to the writ petitioner under the provisions of the Actand therefore, this Court is not inclined to entertain the writpetition on merits and adjudicate the issues involved in respectof fixing of average rate of royalty payment". 9. In the WP.No.22508 of 2017, in the final order, theSingle Judge had also observed that "this Court is of anundoubted opinion that the writ petitioner has not made out anycase for the purpose of waiving the efficacious alternate remedyavailable to the writ petitioner under the provisions of the Actand therefore, this Court is not inclined to entertain the writpetition on merits and adjudicate the issues involved in respectof fixing of average rate of royalty payment". 10.We would like to reiterate the legal position involvinginvocation of the extraordinary jurisdiction of this Court byplacing reliance upon the judgment of a Division Bench of thisCourt in the Joint Commissioner of Income Tax, Media Range andothers Vs. Kalanithi Maran and another (2014 (3) Law Weekly 846)in in which one of us is a party (MMSJ) wherein law laid down bythe Apex Court in Commissioner of Income Tax and others Vs.Chhabil Dass Agarwal, ((2014) 1 SCC 603), has been noted of. Thefollowing paragraphs would be apposite. “12. While holding so, we are quite aware that thejurisdiction vested with High Court under Article226 of the Constitution of India can be exercisedin a given case. In other words, the restriction isself-imposed and nothing else. There may be a case,where an assessment is sought to be reopened by anOfficer, who is not competent to do so. Similarly,there may be cases, where on the face of it wouldappear that the reopening is barred by limitationor lacks inherent jurisdiction. To put itdifferently, in a case, where no adjudication isrequired on facts, then certainly jurisdiction ofthis Court under Article 226 of the Constitution ofIndia can very well be invoked. Therefore, to sucha limited extent, we are inclined to hold that thejurisdiction of this Court under Article 226 of theConstitution of India can be exercised. 13. Considering the said principle, theSupreme Court in Commissioner of Income Tax andothers Vs. Chhabil Dass Agarwal, ((2014) 1 SCC 603), was pleased to hold as under: “15. Thus, while it can be said that thisCourt has recognized some exceptions to the ruleof alternative remedy, i.e., where the statutoryauthority has not acted in accordance with theprovisions of the enactment in question, or indefiance of the fundamental principles of judicialprocedure, or has resorted to invoke theprovisions which are repealed, or when an orderhas been passed in total violation of theprinciples of natural justice, the propositionlaid down in Thansingh Nathmal case, (AIR 1964 SC1419), Titagarh Paper Mills case ((1983) 2 SCC433) and other similar judgments that the HighCourt will not entertain a petition under Article226 of the Constitution if an effectivealternative remedy is available to the aggrievedperson or the statute under which the actioncomplained of has been taken itself contains amechanism for redressal of grievance still holdsthe field. Therefore, when a statutory forum iscreated by law for redressal of grievances, a writpetition should not be entertained ignoring thestatutory dispensation.'' We do not find any of the circumstances aslaid down by the Supreme Court available before us.14. Ratio laid down in Commissioner of IncomeTax and others Vs. Chhabil Dass Agarwal, ((2014) 1SCC 603):- The entire issues framed, in our consideredview, are covered by the recent judgment of theSupreme Court referred above. Considering thejurisdiction of this Court under Article 226 of theConstitution of India, it has been held therein inthe following manner: “10. In the instant case, the only questionwhich arises for our consideration and decision iswhether the High Court was justified ininterfering with the order passed by the assessingauthority under Section 148 of the Act in exerciseof its jurisdiction under Article 226 when anequally efficacious alternate remedy was availableto the assessee under the Act.” The entire issues framed, in our consideredview, are covered by the recent judgment of theSupreme Court referred above. Considering thejurisdiction of this Court under Article 226 of theConstitution of India, it has been held therein inthe following manner: “10. In the instant case, the only questionwhich arises for our consideration and decision iswhether the High Court was justified ininterfering with the order passed by the assessingauthority under Section 148 of the Act in exerciseof its jurisdiction under Article 226 when anequally efficacious alternate remedy was availableto the assessee under the Act.” 15. The Supreme Court, while considering thesaid issue, has also taken into consideration thedecision rendered in G.K.N.Driveshafts (India)Limited Vs. Income-tax Officer, ((2003) 1 SCC 72 =259 ITR 19(SC)). In this connection, it is appositeto refer paragraph No.12 of the said decision, which reads as follows:- “12. The Constitution Benches of this Courtin K.S. Rashid and Sons vs. Income TaxInvestigation Commission, (AIR 1954 SC 207);Sangram Singh vs. Election Tribunal, Kotah, (AIR1955 SC 425); Union of India vs. T.R. Varma, (AIR1957 SC 882); State of U.P. vs. Mohd. Nooh, (AIR1958 SC 86) and K.S. Venkataraman and Co. (P) Ltd.vs. State of Madras, (AIR 1966 SC 1089) have heldthat though Article 226 confers a very wide powersin the matter of issuing writs on the High Court,the remedy of writ is absolutely discretionary incharacter. If the High Court is satisfied that theaggrieved party can have an adequate or suitablerelief elsewhere, it can refuse to exercise itsjurisdiction. The Court, in extraordinarycircumstances, may exercise the power if it comesto the conclusion that there has been a breach ofprinciples of natural justice or the procedurerequired for decision has not been adopted."16. Statutory remedy:- When in a fiscal statute, hierarchy of remedyof appeals are provided, the party has to exhaustthem instead of seeking relief by invoking thejurisdiction of this Court under Article 226 of theConstitution of India and as held in Commissionerof Income Tax and others Vs. Chhabil Dass Agarwal,((2014) 1 SCC 603), the Court will have to takeinto consideration of the legislative intentenunciated in the enactment in such cases. It isnot as if the alternative remedy is neitherefficacious nor effective. In the above saidjudgment, the Supreme Court held as under: “13. In Nivedita Sharma vs. CellularOperators Assn. of India, (2011) 14 SCC 337, thisCourt has held that where hierarchy of appeals isprovided by the statute, party must exhaust thestatutory remedies before resorting to writjurisdiction for relief and observed as follows “12. In Thansingh Nathmal v. Supdt. ofTaxes, (AIR 1964 SC 1419), this Court adverted tothe rule of self-imposed restraint that the writpetition will not be entertained if an effectiveremedy is available to the aggrieved person andobserved: https://hcservices.ecourts.gov.in/hcservices/ as a court of appeal against the decision of acourt or tribunal, to correct errors of fact, anddoes not by assuming jurisdiction under Article226 trench upon an alternative remedy provided bystatute for obtaining relief. Where it is open tothe aggrieved petitioner to move anothertribunal, or even itself in another jurisdictionfor obtaining redress in the manner provided by astatute, the High Court normally will not permitby entertaining a petition under Article 226 ofthe Constitution the machinery created under thestatute to be bypassed, and will leave the partyapplying to it to seek resort to the machinery soset up.” 13. In Titaghur Paper Mills Co. Ltd. v.State of Orissa, (1983) 2 SCC 433 this Courtobserved: (SCC pp. 440-41, para 11) https://hcservices.ecourts.gov.in/hcservices/ as a court of appeal against the decision of acourt or tribunal, to correct errors of fact, anddoes not by assuming jurisdiction under Article226 trench upon an alternative remedy provided bystatute for obtaining relief. Where it is open tothe aggrieved petitioner to move anothertribunal, or even itself in another jurisdictionfor obtaining redress in the manner provided by astatute, the High Court normally will not permitby entertaining a petition under Article 226 ofthe Constitution the machinery created under thestatute to be bypassed, and will leave the partyapplying to it to seek resort to the machinery soset up.” 13. In Titaghur Paper Mills Co. Ltd. v.State of Orissa, (1983) 2 SCC 433 this Courtobserved: (SCC pp. 440-41, para 11) “11. … It is now well recognised that wherea right or liability is created by a statutewhich gives a special remedy for enforcing it,the remedy provided by that statute only must beavailed of. This rule was stated with greatclarity by Willes, J. in Wolverhampton NewWaterworks Co. v. Hawkesford, 141 ER 486 in thefollowing passage: ‘… There are three classes of cases inwhich a liability may be established foundedupon a statute. … But there is a third classviz. where a liability not existing at commonlaw is created by a statute which at the sametime gives a special and particular remedy forenforcing it. … The remedy provided by thestatute must be followed, and it is notcompetent to the party to pursue the courseapplicable to cases of the second class. Theform given by the statute must be adopted andadhered to.’ The rule laid down in this passage wasapproved by the House of Lords in Neville v.London Express Newspapers Ltd., 1919 AC 368 andhas been reaffirmed by the Supreme Today WithAll High Courts Page 4 of 6 Privy Council inAttorney General of Trinidad and Tobago v.Gordon Grant and Co. Ltd., 1935 AC 532 (PC) andSecy. of State v. Mask and Co., AIR 1940 PC 105It has also been held to be equally applicable to enforcement of rights, and has been followedby this Court throughout. The High Court wastherefore justified in dismissing the writpetitions in limine.” 14. In Mafatlal Industries Ltd. v. Union ofIndia, (1997) 5 SCC 536 B.P.Jeevan Reddy, J.(speaking for the majority of the larger Bench)observed: “77. … So far as the jurisdiction of theHigh Court under Article 226—or for that matter,the jurisdiction of this Court under Article 32—is concerned, it is obvious that the provisionsof the Act cannot bar and curtail these remedies.It is, however, equally obvious that whileexercising the power under Article 226/Article32, the Court would certainly take note of thelegislative intent manifested in the provisionsof the Act and would exercise their jurisdictionconsistent with the provisions of the enactment.” 14. In Union of India vs. Guwahati CarbonLtd., (2012) 11 SCC 651, the Apex Court hasreiterated the aforesaid principle and observed: “8. Before we discuss the correctness ofthe impugned order, we intend to remindourselves the observations made by this Court inMunshi Ram v. Municipal Committee, Chheharta,(1979) 3 SCC 83. In the said decision, thisCourt was pleased to observe that: “23. … when a revenue statute provides fora person aggrieved by an assessment thereunder,a particular remedy to be sought in a particularforum, in a particular way, it must be sought inthat forum and in that manner, and all the otherforums and modes of seeking [remedy] areexcluded.” 11. Therefore, this writ appeal is disposed of with theabove observations with liberty to the assessee / appellant toapproach the Tribunal within four weeks from the date of receiptof a copy of this order. We leave all the issues open to be https://hcservices.ecourts.gov.in/hcservices/ “23. … when a revenue statute provides fora person aggrieved by an assessment thereunder,a particular remedy to be sought in a particularforum, in a particular way, it must be sought inthat forum and in that manner, and all the otherforums and modes of seeking [remedy] areexcluded.” 11. Therefore, this writ appeal is disposed of with theabove observations with liberty to the assessee / appellant toapproach the Tribunal within four weeks from the date of receiptof a copy of this order. We leave all the issues open to be https://hcservices.ecourts.gov.in/hcservices/ agitated before the Tribunal. Consequently, the connectedMiscellaneous Petition is closed. No costs.Sd/-Assistant Registrar // True Copy// Sub Assistant Registrar mbi To1. The Deputy Commissioner of Income Tax, Transfer Pricing Officer - 2 (1), Room No.506, 5th Floor, Tower - I, BSNL Building, No.16, Greams Road, Chennai - 600 006.2. The Deputy Commissioner of Income Tax (LTU), 7th Floor, Income Tax Main Building (Aayakar Bhawan), 121 Mahatma Gandhi Road, Nungambakkam, Chennai - 600 034.+1cc to M/s.Hema Muralikrishnan, Advocate, Sr.No.30214WA.No.2104 of 2018andCMP.No.16496 of 2018EV(CO)GS(20/10/2020)