Of Income Tax, Delhi- 1 v. M/S. Amadeus India Pvt. Ltd

$~1 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 548/2018 PR. COMMISSIONER OF INCOME TAX, DELHI- 1..... AppellantThrough :Mr. Sanjay Kumar, Senior StandingCounsel for Revenue along with Ms.Easha Kadian, Advocate. versus % M/S. AMADEUS INDIA PVT. LTD...... RespondentThrough :Mr. Mayank Nagi and Mr. TarunSingh, Advocates.Date of Decision: 18[th]October, 2022 CORAM: HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J (ORAL): 1.Present appeal has been filed by the Appellant, Revenue, underSection 260A of the Income Tax Act, 1961 (‘the Act’), to set aside theimpugned order dated 23[rd]October, 2017, passed by the Income TaxAppellate Tribunal (‘ITAT’) in ITA No. 1835/Del/2015 for the AssessmentYear (‘AY’) 2010-11. 2.The following question of law was framed on 20[th]January, 2020: “Whether the Ld. ITAT is justified in holding that provisions ofservicesofmarketdevelopment(servicesofcarryingoutadvertisement, market & business promotion i.e. AMP) are not international transactions in the light of provisions of sub-clause(d) of clause (i) of explanation to section 92B of the Income TaxAct, 1961?" 3.The facts relevant for determining the aforesaid question of law arethat the Assessee filed its return of income (ITR) for AY 2010-11. 4.The Assessee’s case was selected for scrutiny assessment and a noticewas issued under Section 143(2) of the Act, which was complied with. TheAssessing Officer ('AO') observed that in the year under consideration, theAssessee had entered into international transactions with its AssociatedEnterprises (AEs) and in order to determine the Arm’s Length Price ('ALP')of the said international transactions, the AO made a reference to theTransfer Pricing Officer ('TPO'). During the transfer pricing, the TPOobserved that the Assessee has incurred more than normal sales andmarketing expenses to build ‘Amadeus’ brand in India, which is legallyowned by the AE i.e. M/s Amadeus IT Group SA (‘Amadeus Spain’). TheTPO concluded that such higher than normal market expenses i.e. AMPconstitute an international transaction between the Assessee and its AE. TheTPO computed the adjustment by applying the Bright Line method. 5.The AO issued a draft order dated 29[th]March, 2014, incorporating theadditions made by the TPO. In response to the said draft order, the Assesseefiled its objections before the Dispute Resolution Panel ('DRP'), which weredismissed and the additions made by the AO were upheld. Following thedirections of the DRP, the AO passed the final assessment order dated 23[rd]February, 2015, and made additions which included an addition of transferpricing adjustment for the AMP expenses at Rs. 81,16,72,668/-. TheAssessee aggrieved by the assessment order filed an appeal before the ITAT. 6.The ITAT allowed the appeal and relied upon the order passed by itspredecessor bench in Assessee’s own case for the AY 2009-10, to delete thesaid addition of transfer pricing adjustment made on account of AMPexpenditure after holding that it does not constitute an internationaltransaction. Pertinently, the earlier order of ITAT for AY 2009-10 wasupheld by this Court in ITA No. 154/2017, decided on 22[nd]May, 2017. 7.The learned senior standing counsel for the Revenue, states that theITAT erred in law while holding that the provision of services of marketdevelopment (service of carrying out advertisement, market and businesspromotion i.e., AMP) are not international transaction by ignoring theprovisions of sub-clause (d) of clause (i) of Explanation to Section 92B ofthe Act of 1961. He states that even though the transfer pricing adjustmentmade on account of AMP expenses was deleted by the ITAT in AY 2009-10, which order was upheld by this Court in ITA No. 154/2017 decided on22[nd]May, 2017, since the principles of res judicata are not applicable in taxproceedings, the Court can examine the legality of the impugned orderpassed by the ITAT. 7.The learned senior standing counsel for the Revenue, states that theITAT erred in law while holding that the provision of services of marketdevelopment (service of carrying out advertisement, market and businesspromotion i.e., AMP) are not international transaction by ignoring theprovisions of sub-clause (d) of clause (i) of Explanation to Section 92B ofthe Act of 1961. He states that even though the transfer pricing adjustmentmade on account of AMP expenses was deleted by the ITAT in AY 2009-10, which order was upheld by this Court in ITA No. 154/2017 decided on22[nd]May, 2017, since the principles of res judicata are not applicable in taxproceedings, the Court can examine the legality of the impugned orderpassed by the ITAT. 8.In reply, learned counsel for the Respondent, Assessee, has drawn ourattention to another order of the ITAT dated 27[th]February, 2019, inAssessee’s own case for subsequent AY 2011-12, wherein similarly theITAT has deleted the transfer pricing adjustment made on account of AMPexpenses and thereafter, this Court in ITA No. 901/2019 vide order 16[th]October, 2019, upheld the said order of the ITAT. 9.He states that this Court declined to refer any question of law for AY2009-10 as well as AY 2011-12. He states that in fact, for both the years, thedecision of the Appellate Tribunal to the effect that there is no international transaction between the Assessee and the AE, was not doubted by this Courtand the appeals filed by the Revenue in the said two years were dismissedholding that no referable question of law arose for its decision. 10.He states that the ITAT for the assessment year under considerationi.e. AY 2010-11 has concluded there has been no change of facts andcircumstances when compared with AY 2009-10 and he, therefore, contendsthat following the rule of consistency the ITAT rightly held that thetransaction should be treated similarly in the assessment year underconsideration. 11.The learned counsel for the Assessee has relied upon the judgment ofthis Court in the case of Bausch & Lomb Eyecare Pvt. Ltd. vs. AdditionalCommissioner of Income Tax, [2016] 381 ITR 227, to contend thatexpenses incurred by the Assessee under the head 'AMP' cannot be termedas an international transaction, in the absence of any provision for the samein the agreement in this regard with Associated Enterprise. He has alsoplaced reliance on the judgment of this Court in the case of Maruti Suzukivs. CIT, [2016] 381 ITR 117 to contend that there is no machinery provisionfor determining the Arm’s Length Price of AMP expenditure. Learned senior standing counsel for Revenue in rebuttal submits thatthe Department has not accepted the judgment in the case of Bausch &Lomb Eyecare Pvt. Ltd. (supra) and a Civil Appeal impugning the saidjudgment is pending before the Supreme Court, however, he admits there isno stay of the said judgment. 12.The learned counsel for the Respondent, Assessee, further states thethe orders of the predecessor benches of this Court dismissing Revenue’sappeal for AY 2009-10 and 2011-12 are pending challenge before the Supreme Court. He states that Assessee has no objection if this Courtobserves that the order passed in this assessment year will abide by the finaldecision in the aforesaid appeals. 13.We have heard the learned counsel for the parties. A perusal of theimpugned order shows that the ITAT in its impugned order concluded thatthe factual matrix has remained consistent in AY 2009-10 and AY 2010-11and, therefore, relied upon the findings recorded for AY 2009-10 to holdthat the expenses incurred on AMP does not constitute an internationaltransaction between the Assessee and its AE. The findings of the ITAT inprevious AY 2009-10, as relied upon in the impugned order reads as under:- Supreme Court. He states that Assessee has no objection if this Courtobserves that the order passed in this assessment year will abide by the finaldecision in the aforesaid appeals. 13.We have heard the learned counsel for the parties. A perusal of theimpugned order shows that the ITAT in its impugned order concluded thatthe factual matrix has remained consistent in AY 2009-10 and AY 2010-11and, therefore, relied upon the findings recorded for AY 2009-10 to holdthat the expenses incurred on AMP does not constitute an internationaltransaction between the Assessee and its AE. The findings of the ITAT inprevious AY 2009-10, as relied upon in the impugned order reads as under:- “8.2 On a careful consideration of the facts on record we are of theopinion that there is nothing on record to show that the appellant byincurring AMP expense wanted to promote its AE. The Ld TPO hasfailed to prove that the appellant by incurring AMP expenses wantedto benefit the AE and not to promote its own business. Submission ofLd TPO that clauses 10.02, 10.5, 11.01 and Article XVI of theagreement indicate existence of a "transaction" for brand promotionis not supported by contents of those clauses. Appellant's objectionsbefore the learned DRP, which we have quoted above, areacceptable. These clauses nowhere provide that the appellant will beincurring brand promotion expenses for and on behalf of its AE orsolely for its business purposes and interests. Agreement dated 01stOctober 2004 between appellant and its AE is based upon revenuesharing model in which 46% revenue is being shared by AmadeusSpain with the appellant and hence it is difficult to visualize thatappellant will not be incurring routine advertisement expenses in itsentrepreneur capacity. Excluding payment of incentives, which inearlier years have been held, to be pure selling expenses the ratio ofAMP/Sales of the appellant is mere 2.29%. Ld AR is also right inrelying upon the decision of Hon'ble Jurisdictional High Court incase of Sony Mobile Communications (supra) for submitting thatevents which would transpire on termination of distribution mightrequire a TP adjustment at that stage but the same will beopinion that there is nothing on record to show that the appellant byincurring AMP expense wanted to promote its AE. The Ld TPO hasfailed to prove that the appellant by incurring AMP expenses wantedto benefit the AE and not to promote its own business. Submission ofLd TPO that clauses 10.02, 10.5, 11.01 and Article XVI of theagreement indicate existence of a "transaction" for brand promotionis not supported by contents of those clauses. Appellant's objectionsbefore the learned DRP, which we have quoted above, areacceptable. These clauses nowhere provide that the appellant will beincurring brand promotion expenses for and on behalf of its AE orsolely for its business purposes and interests. Agreement dated 01stOctober 2004 between appellant and its AE is based upon revenuesharing model in which 46% revenue is being shared by AmadeusSpain with the appellant and hence it is difficult to visualize thatappellant will not be incurring routine advertisement expenses in itsentrepreneur capacity. Excluding payment of incentives, which inearlier years have been held, to be pure selling expenses the ratio ofAMP/Sales of the appellant is mere 2.29%. Ld AR is also right inrelying upon the decision of Hon'ble Jurisdictional High Court incase of Sony Mobile Communications (supra) for submitting thatevents which would transpire on termination of distribution mightrequire a TP adjustment at that stage but the same will be immaterial to presume existence of an agreement, arrangement orunderstanding in the year under consideration. In this regardHon'ble High Court at para 153 of its reported judgment has beenpleased to be hold as under: immaterial to presume existence of an agreement, arrangement orunderstanding in the year under consideration. In this regardHon'ble High Court at para 153 of its reported judgment has beenpleased to be hold as under: “153. Economic ownership of a brand is an intangible asset,justaslegalownership.Undifferentiated,economicownership brand valuation is not done from moment tomoment but would be mandated and required if the assessedis deprived, denied or transfers economic ownership. Thiscan happen upon termination of the distribution-cum-marketing agreement or when economic ownership getstransferred to a third party. Transfer Pricing valuation,therefore, would be mandated at that time. The internationaltransaction could then be made a subject matter of transferpricing and subjected to tax." 8.3 As held above appellant has raised objections before the learnedDRP that none of the above clauses of the agreement make itmandatory for the appellant to incur brand promotion expenses forand on behalf of the AE. Ld DRP has not disturbed these objectionsbut has upheld the case of Ld TPO on some other grounds i.e (i) byrelying upon Special Bench decision in case of LG Electronicsreported in 140 ITD 41(Del)(SB) (ii) by holding that since appellantis a Dependent Agency PE of its AE hence all the expenses on AMPare being incurred by it for the benefit of AE and (iii) by relyingupon amended provisions of section 92B. We do not find anysubstance in the above approach of the Ld DRP. Decision of SpecialBench in LG Electronics (supra) is no more good law post abovedecisions of the Jurisdictional High Court. We have alreadyreproduced above findings of Jurisdictional High Court in case ofBausch & Lomb Eyecare (India) (P.) Ltd (supra) wherein it is heldthat " As far as the legislative intent is concerned, it is seen thatcertain transactions listed in the Explanation under clauses (i)(a) to(e) to Section 92B are described as an 'International transaction'.This might be only an illustrative list, but significantly’ it does notlist AMP spending as one such transaction" hence amendments tosection 92B by Finance Act 2012 also do not support the case of the Revenue. Lastly on the observations made by the Ld. DRP that sincethe appellant a Dependent Agency PE of its AE, hence all itsexpenses on AMP are being incurred by it for the benefit of AE wewould like to state that this is also entirely irrelevant. While allegingas above the Ld DRP has not appreciated that appellant has beenheld to be a Dependent Agent Permanent Establishment of AmadeusSpain for determination of Amadeus Spain's income, which is taxablein India. Moreover, we may refer here decision of Hon'bleJurisdictional High Court in case of Whirlpool of India Ltd (supra)wherein it is held by the Hon'ble High Court as under: "37. The provisions under Chapter X do envisage a 'separateentityconcept'.Inotherwords,therecannotbeapresumption that in the present case since WOIL is asubsidiary of Whirlpool USA, all the activities of WOIL arein fact dictated by Whirlpool USA. Merely because WhirlpoolUSA has a financial interest, it cannot be presumed thatAMP expense incurred by the WOIL are at the instance or onbehalf of Whirlpool USA. There is merit in the contention ofthe Assessee that the initial onus is on the Revenue todemonstrate through some tangible material that the twoparties acted in concert and further that there was anagreementtoenterintoaninternationaltransactionconcerning AMP expenses. 46. As already mentioned, merely because there is anincidental benefit to Whirlpool USA, it cannot be said thatthe AMP expenses incurred by WOIL was for promoting thebrand of Whirlpool USA. As mentioned in Sassoon J David(supra) "the fact that somebody other than the Assessee isalso benefited by the expenditure should not come in the wayof an expenditure being allowed by way of a deduction underSection 10(2)(xv) of the Act (Indian Income Tax Act, 1922) ifit satisfies otherwise the tests laid down by the law" 46. As already mentioned, merely because there is anincidental benefit to Whirlpool USA, it cannot be said thatthe AMP expenses incurred by WOIL was for promoting thebrand of Whirlpool USA. As mentioned in Sassoon J David(supra) "the fact that somebody other than the Assessee isalso benefited by the expenditure should not come in the wayof an expenditure being allowed by way of a deduction underSection 10(2)(xv) of the Act (Indian Income Tax Act, 1922) ifit satisfies otherwise the tests laid down by the law" 8.4 Considering the material facts like absence of an agreement,arrangement or understanding between the appellant and its AE forsharing AMP expenses or for incurring AMP expenses for sole benefit of the AE, payments made by the appellant under the headAMP to the domestic parties cannot be termed as an "internationaltransaction" specifically when the Ld TPO has not been able toprove that expenses incurred were not for the business carried out bythe appellant in India.We are thus of the opinion that the TPO hadwrongly invoked the provisions of Chapter X of the Act for the saidAMP spent. Addition of Rs 75,40,09,515/- is therefore directed to bedeleted. Ground Nos 4 to 4.4 are therefore allowed. Considering ourconclusions above ground nos 5 and 5.1 do not require anyadjudication." (Emphasis supplied) 14.The relevant finding of ITAT that there has been no change in factsand circumstances in AY 2010-11 when compared with AY 2009-10 readsas under: - “4.5 In the year under consideration there is no change in facts andcircumstances as compared to the Assessment year 2009-10 and theagreement relied upon in assessment year 2009-10 between theparties is continued in the year under consideration also.” 15.The learned senior standing counsel for the Revenue fairly admits thatthere are no distinguishable facts in the present assessment year from that ofAY 2009-10 as well as 2011-12. 16.The learned counsel for the Revenue has admitted that the agreementwhich is subject matter of scrutiny in AY 2009-10, AY 2010-11 (the yearunder consideration) and AY 2011-12 is the same agreement. The ITAT forAY 2009-10 and 2011-12 has given a finding on facts that the AMPexpenses incurred by the Assessee cannot be termed as an internationaltransaction and that there was no evidence on record to enable the TPO tohold that the expenses were not incurred for the business carried out by theAssessee in India. The said finding of ITAT has been upheld by the predecessor benches of this Court in favour of the Assessee. 17.The ITAT while upholding deleting the said addition, has followedthe judgment of this Court in Bausch and Lomb Eyecare Pvt. Ltd. (Supra),wherein this Court held as under:- "... 64. In the absence of any machinery provision, bringing an imaginedtransaction to tax is not possible. The decisions in CIT v. B.C.Srinivasa Setty [1981] 128 ITR 294 and PNB Finance Ltd. v. CIT[2008] 307 ITR 75 make this position explicit. Therefore, where theexistence of an international transaction involving AMP expense withan ascertainable price is unable to be shown to exist, even if suchprice is nil, Chapter X provisions cannot be invoked to undertake aTP adjustment exercise. 65. As already mentioned, merely because there is an incidentalbenefit to the foreign AE, it cannot be said that the AMP expensesincurred by the Indian entity was for promoting the brand of theforeign AE. As mentioned in Sassoon J Davit & Co. (P.) Ltd. v. CIT[1979] 118 ITR 261 "the fact that somebody other than the Assesseeis also benefitted by the expenditure should not come in the way of anexpenditure being allowed by way of a deduction under Section 10(2) (xv) of the Act (Indian Income-tax Act, 1922) if it satisfiesotherwise the tests laid down by the law". ..." 65. As already mentioned, merely because there is an incidentalbenefit to the foreign AE, it cannot be said that the AMP expensesincurred by the Indian entity was for promoting the brand of theforeign AE. As mentioned in Sassoon J Davit & Co. (P.) Ltd. v. CIT[1979] 118 ITR 261 "the fact that somebody other than the Assesseeis also benefitted by the expenditure should not come in the way of anexpenditure being allowed by way of a deduction under Section 10(2) (xv) of the Act (Indian Income-tax Act, 1922) if it satisfiesotherwise the tests laid down by the law". ..." 18.We may also note the judgment of this Court in Maruti Suzuki(Supra), where this Court has held that there is no machinery provision inChapter X which enables an AO to determine what should be a faircompensation an Indian entity would be entitled to if it is found that there isan international transaction with respect to AMP between the Assessee andthe AE. 19.It is an admitted position that the facts and circumstances in thepresent appeal for AY 2010-11 are similar to the facts and circumstances in AY 2009-10 and AY 2011-12. Undoubtedly, the principles of res judicataand estoppel are not applicable taxation matters. However, it has been heldby this Court in Principal Commissioner of Income Tax vs. Power LinksTransmission Ltd., [2022] 138 taxmann.com 542 (Delhi), that it is notappropriate to allow re-consideration of an issue for a subsequentassessment year if the same fundamental aspect permeates in differentassessment years and the relevant paragraph of the judgment reads asunder:- “7.The Supreme Court in Principal Commissioner of IncomeTax,NewDelhivs.MarutiSuzukiIndiaLtd.,[2019]107 taxmann.com 375 (SC) has emphasized the importance ofpromoting the ‘principle of consistency and certainty’ in tax matters.The Apex Court has held "There is a value which the court mustabide by in promoting the interest of certainty in tax litigation. Theview which has been taken by this Court in relation to the respondentfor AY 2011-12 must, in our view be adopted in respect of the presentappeal which relates to AY 2012-13. Not doing so will only result inuncertainty and displacement of settled expectations. There is asignificant value which must attach to observing the requirement ofconsistency and certainty. Individual affairs are conducted andbusiness decisions are made in the expectation of consistency,uniformity and certainty. To detract from those principles is neitherexpedient nor desirable." 8.Consequently, this Court is of the view that all similar mattersshould receive similar treatment except where factual differencesrequireadifferenttreatmentso thatthere is assuranceofconsistency, uniformity, predictability and certainty of judicialapproach.” (Emphasis supplied) 20.The law on the issue of AMP is well settled by the aforesaid judgements of this Court and the same has been consistently applied by theappellate authorities below and the predecessor benches of this Court to thefacts of the Assessee in AY 2009-10 and AY 2011-12. Therefore, we areunable to agree with learned senior standing counsel for the Revenue thatthere is any change in law which would merit reconsideration of said issuesof AMP in the present proceedings. We, therefore, hold that the ITAT hasproperly and correctly assessed the fact and law while concluding thatservices of AMP are not international transactions in light of the provisionsof sub-clause (d) of clause (i) of Explanation to Section 92B of the IT Act,1961. 21.The question of law raised in the present appeal was also raised beforethis Court in Revenue’s appeal for AY 2009-10 in ITA No. 154/2017 and anappeal against the same is pending before the Supreme Court. Since theITAT has relied on the judgment of AY 2009-10, therefore, taking thestatement of the counsel for the Assessee on record it is made clear that thefinal result qua dispute between the parties will abide by the judgment of theSupreme Court in SLP bearing Diary no. 5968 of 2018, referred tohereinabove. 22.Accordingly, the present appeal stands disposed of. 21.The question of law raised in the present appeal was also raised beforethis Court in Revenue’s appeal for AY 2009-10 in ITA No. 154/2017 and anappeal against the same is pending before the Supreme Court. Since theITAT has relied on the judgment of AY 2009-10, therefore, taking thestatement of the counsel for the Assessee on record it is made clear that thefinal result qua dispute between the parties will abide by the judgment of theSupreme Court in SLP bearing Diary no. 5968 of 2018, referred tohereinabove. 22.Accordingly, the present appeal stands disposed of. MANMEET PRITAM SINGH ARORA, J OCTOBER 18, 2022msh/aa MANMOHAN, J