W.p.(C)/6876/2008 Of Maruti Suzuki India Ltd v. Additional Commissioner Of Income Tax Transfer Pricing Officer New Delhi

THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on : 02.06.2010Judgment delivered on: 01.07.2010 + W.P.(C) 6876/2008 „MARUTI‟ SUZUKI INDIA LTD versus ..... Petitioner ADDITIONAL COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER NEW DELHI ..... Respondent Advocates who appeared in this case:For the Petitioner : Mr S. Ganesh, Sr Adv. with Mr Arjun Pant For the Respondent : Mr Sanjeev Sabharwal CORAM:- HON‟BLE MR JUSTICE BADAR DURREZ AHMED HON‟BLE MR JUSTICE V.K. JAIN 1.Whether Reporters of local papers may be allowed to see the judgment? Yes 2.To be referred to the Reporter or not? Yes 3.Whether the judgment should be reported in Digest?Yes V.K. JAIN, J. 1.The petitioner before this Court, formerly known as Maruti Udyog Limited (hereinafter referred to as ‗Maruti‘), is engaged in the business of manufacture and sale of automobiles, besides trading in spares and components of WP.(C).No. 6876/2008 automotive vehicles. The petitioner launched ‗Maruti 800‘ Car in the year 1983 and has thereafter launched a number of other models, including Omni in the year 1984 and Esteem in the year 1994. The trade mark/logo ‗M‘ is the registered trade mark of the petitioner-company. 2.Since Maruti wanted a licence from Suzuki for its SH model and Suzuki had granted licence to it, for the manufacture and sale of certain other models of Suzuki four-wheel motor vehicles, Maruti, on 4[th] December, 1992, entered into a License Agreement, with Suzuki Motor Corporation (hereinafter referred to as ‗Suzuki‘) with the approval of Government of India. 3.The Agreement, to the extent, it is relevant for our purpose, provided as under: “1.05 “Licensed Information” ―Licensed Information‖ shall mean any and all technical information whether patented or not, including know-how, trade secrets and other data (including all drawings, prints, machine and material specifications, engineering data and other information, knowledge and advice) which SUZUKI now has or which may come into its possession and control during the term of this Agreement relating to the engineering, design and development, manufacture, quality control, assembly, testing, sale and after-sales service of PRODUCTS and PARTS and which may be supplied by SUZUKI to ‗MARUTI‘ on or after the Effective Date pursuant to this Agreement as well as before the Effective Date. LICENSE AND SUZUKI‟S OWNERSHIP 2.01 scope of License (a) SUZUKI has agreed to provide technical collaboration and license necessary to the engineering, design and development, manufacture, assembly, testing, quality control, sale and after sales service of the PRODUCTS and PARTS, subject to the payment of a lump sum specified in Article 6.01(a) and in accordance with Article 3.01 and other terms and conditions contained in this Agreement. (b) SUZUKI hereby grants to ‗MARUTI‘ during the term of this Agreement, in strict accordance with the terms and subject to the conditions herein set forth, (i) the exclusive right (within the meaning as provided for in Article 5.02 of this Agreement) to use the Licensed Information and Licensed Trademarks for the engineering, design and development, manufacture, assembly, testing, quality control, sale and after-sale service of the PRODUCTS and PARTS within the Territory and (ii) the non-exclusive right to use the same with regard to SH Series only for the sale in such other countries as provided in Article 5.05. (c) SUZUKI declares that if SUZUKI grants a license for manufacturing the PRODUCTS and/or PARTS to any party other than ‗MARUTI‘, such licensee of SUZUKI will not be given the right to sell the PRODUCTS and or PARTS in any country in Europe. (d) ‗MARUTI‘ shall have the right to sub-license the rights granted hereunder to other entities which are directly or indirect6ly owned or controlled by persons of Indian nationality, with the prior written consent of SUZUKI, which SUZUKI will not unreasonably withhold. (d) ‗MARUTI‘ shall have the right to sub-license the rights granted hereunder to other entities which are directly or indirect6ly owned or controlled by persons of Indian nationality, with the prior written consent of SUZUKI, which SUZUKI will not unreasonably withhold. PROVISIONS RELATING TO LICENSING TECHNIAL ASSISTANCE 3.01 Supply of Licensed Information (a) SUZUKI agrees to make available to ‗MARUTI‘ such Licensed Information which SUZUKI has the right and capacity, and is free, to disclose and/or grant license to ‗MARUTI‘ as contemplated by this Agreement. Notwithstanding the foregoing provision in this Article 3.01, SUZUKI shall make available to ‗MARUTI‘ such Licensed Information as, when properly used by ‗MARUTI‘, will be sufficient and complete for the engineering, design and development, manufacture, assembly, testing, quality control, sale and after-sales service of the PRODUCTS and/or PARTS as contemplated by this Agreement. (b) SUZUKI also agrees to make available to ‗MARUTI‘ upon ‗MARUTI‘‘S request such information required for obtaining National Type Approval in the countries where the PRODUCTS and/or PARTS are intended to be exported which is available to SUZUKI without considerable costs and expenses. -3.07 SUZUKI InPlant Training SUZUKI agrees, during the term of this Agreement, upon receipt of written request from ‗MARUTI‘ to make available to ‗MARUTI‘ SUZUKI‘s plant facilities, as designated by SUZUKI, for the purpose of in-plant observation and training of personnel of ‗MARUTI‘. 3.08 Despatch of SUZUKI‘s Personnel(a) SUZUKI agrees, during the term of this Agreement, upon written request from ‗MARUTI‘, to dispatch its personnel to the factories of ‗MARUTI‘ to give technical advice and guidance in the use of the Licensed Information for the engineering, design and development, manufactures, assembly, testing, quality control and sale and after-sales service of PRODUCTS or PARTS. PURCHASE OF PRODUCTION MACHINERY AND PARTS4.01 Purchase of Production Machinery With regard to the production machinery to be purchased by ‗MARUTI‘ for the manufacture and/or assembly of PRODUCTS and PARTS by ‗MARUTI‘, SUZUKI shall render advice and assistance to ‗MARUTI‘ in the selection and purchase of such equipment and machines, at the request of ‗MARUTI‘. 5.02 Trademark to be Applied to PRODUCTS and PARTSAll PRODUCTS and PARTS manufactures, assembled and sold in Territory by ‗MARUTI‘ pursuant to this Agreement shall bear the trademark of ―MARUTI-SUZUKI‖ and ‗MARUTI‘ shall use and apply the same trademark on containers, packages and wrappings used for and in connection with the sale of such PRODUCTS and PARTS within the Territory. The parties hereto hereby agree to apply for registration in the Territory of the trademark ―MARUTI- SUZUKI‖ jointly in the name of SUZUKI and ‗MARUTI‘ when the application for such trademark becomes acceptable under the applicable laws of India. ‗MARUTI‘ represents and warrants to SUZUKI that the trademark ‗MARUTI‘ has been registered in the Territory in the name of ‗MARUTI‘ and agrees that it will do everything necessary to maintain such registration in the Territory. ‗MARUTI‘ further agrees to apply forthwith for the registration of the trademark ―MARUTI‖ in those countries where it intends to export certain of the PRODUCTS in accordance with Article 5.05 of this Agreement. No trademark other than the Licensed Trademarks and the above trademark ―MARUTI SUZUKI‖ shall be affixed of stamped by ‗MARUTI‘ on any of the PRODUCTS or PARTS or containers, packages or wrapping for PRODUCTS or PARTS or written consent of SUZUKI thereto. ‗MARUTI‘ may use the notation to indicate that the PRODUCTS and/or PARTS have been manufactures and/or assembled under technical collaboration with SUZUKI, for the purposes of their sale and advertisement. 5.04 Not to Use the Word ―SUZUKI‖ Except as Specifically Authorized 5.04 Not to Use the Word ―SUZUKI‖ Except as Specifically Authorized It is understood and agreed that, except as specifically authorized by this Agreement, ‗MARUTI‘ is not authorized to use, nor shall ‗MARUTI‘ use, the word SUZUKI or any word similar thereto or any of the Licensed Trademarks as part of its corporate name, trademark, trade name or commercial designation without the prior written consent of SUZUKI. 5.05 Exports of the SH Series (a) SUZUKI grants to ‗MARUTI‘ a non-exclusive right to export subject to and in accordance with the terms and conditions in this Agreement, the SH Series and its PARTS manufactured and/or assembled by ‗MARUTI‘ pursuant to this Agreement to all countries except those where SUZUKI has, at the date of this Agreement or any time thereafter, its own manufacturing facilities or a licensee for any four-wheel passenger cars or parts thereof. (b) For the purpose of export and sale of the SH Series and its PARTS manufactures and/or assembled by ‗MARUTI‘ pursuant to this Agreement, ‗MARUTI‘ shall be free to establish its own distributor and dealership channels in those countries to which ‗MARUTI‘ may export such SH Series and its PARTS in accordance with paragraph (a) of this Article 5.05 and in which neither SUZUKI, nor any of SUZUKI‘s subsidiaries, nor a SUZUKI‘S licensee for any four-wheel motor vehicles or parts thereof having the right of export and sale of such four-wheel motor vehicles or parts to and in such country, has any distributors or dealers. (e) SUZUKI will, subject to its satisfaction on the quality, price and delivery schedule, promote the export of PARTS made by ‗MARUTI‘ to SUZUKI and/or its overseas manufacturing factories or licensees. ROYALTIES, PAYMENTS AND REPORTS 6.01 Lump Sum As part of the consideration of the technical assistance and license with respect to the SH Series set forth in Exhibit A attached hereto, ‗MARUTI‘ shall pay to SUZUKI lump sum in the sum of Five Hundred Million Japanese Yen (Y 500,000,000/-) in three instalments. 6.02 Running Royalties (a) ‗MARUTI‘ hereby further agrees and shall be obliged to pay to SUZUKI not later than sixty (60) days after the end of each Royalty Calculation Period, (i) a running royalty in the sum equivalent to two and one half per cent, (2.5%) of the aggregate of the FOB price of SUZUKI of the Deleted Portion of CKD Components ascertained in the manner provided hereinbelow in the same number of units in respect of each model of PRODUCTS as the number of the PRODUCTS shipped by ‗MARUTI‘ during the immediately preceding Royalty Calculation Period (whether for sales in the Territory or for exports) and (ii) a running royalty in the sum equivalent to two per cent (2%) of the aggregate sum (translated into Japanese Yen at the exchange rate or rates (Via exchange rate or rates against the United States dollar where appropriate) between Japanese Yen and Indian rupees or other currencies in which the ex-factory prices referred to below are denominated, publicly quoted by the Bank of Tokyo, Ltd. New Delhi Office, on the date of remittance) of the ex-factory prices (net of excise tax) of ‗MARUTI‘ of the PARTS shipped by ‗MARUTI‘ during the immediately preceding Royalty Calculation Period (whether for sales in the Territory or for exports). In the event that any PRODUCTS and/or PARTS are shipped by ‗MARUTI‘, directly or indirectly, to any country other than the Territory during any Royalty Calculation Period, ‗MARUTI‘ shall, in addition to the above sum of running royalties, pay to SUZUKI not later than sixty (60) days after the end of each Royalty Calculation period, an additional running royalty in the sum equivalent to one half of one per cent (0.5%) of the sum of (i) the aggregate of the FOB price of SUZUKI of the Deleted Portion of CKD Components referred to in (i) above in this paragraph (a) multiplied by a fraction in which the denominator is the FOB sales price of SUZUKI multiplied by the number of units of the PRODUCTS shipped by ‗MARUTI‘ during the said Royalty Calculation Period (whether for sales in the Territory or for exports) and the numerator is the FOB sales price of SUZUKI multiplied by the number of units of the PRODUCTS exported by ‗MARUTI‘ during the same Royalty Calculation Period and (ii) the aggregate sum (translated into Japanese Yen as aforesaid) of the ex-factory sales prices (net of excise tax) of ‗MARUTI‘ of those PARTS exported by ‗MARUTI‘ during such Royalty Calculation Period. ―Deleted Portion of CKD Components‖ shall mean a part of one unit of the CKD Components within the meaning as described in (1) in article 1.01 which is, together with the CKD Components as described in (2) of Article 1.01, to be assembled into one unit of PRODUCTS or any multiples of such part of the said unit of CKD Components and, in the event that any PRODUCTS which do not incorporate any CKD Components imported by ‗MARUTI‘ from SUZUKI are shipped by ‗MARUTI‘ during any Royalty Calculation Period, shall mean the CKD Components within the meaning as described in (1) in Article 1.01. 4.Prior to 1993, the petitioner was using the logo ‗M‘ on the front of the cars manufactured and sold by it. From 1993 onwards, the petitioner started using the logo ‗S‘, which is the logo of Suzuki, in the front of new models of the cars manufactured and sold by it, though it continued to use the Mark ‗Maruti‘ along with the word ‗Suzuki‘ on the rear side of the vehicles manufactured and sold by it. 5. A reference under Section 92 CA(1) was made by the Assessing Officer of the petitioner, to the Transfer Pricing Officer (hereinafter referred to as ‗TPO‘) for determination of arm‘s length price for the international transaction undertaken by Maruti with Suzuki in the F.Y.2004-05. A notice dated 27.8.2008 was then issued, by the TPO, to the petitioner with respect to replacement of the front logo ‗M‘, by the logo ‗S‘, in respect of three models, namely, ‗Maruti‘ 800, Esteem and Omni in the year 2004-05, which, according to the TPO, symbolized that the brand logo of Maruti had changed to the brand logo of Suzuki. It was stated in the notice that Maruti having undertaken substantial work towards making the Indian public aware of the brand ‗Maruti‘, that brand had become a premier car brand of the country. According to the TPO, the change of brand logo from ‗Maruti‘ to ‗Suzuki‘, during the year 2004-05, amounted to sale of the brand ‗Maruti‘ to ‗Suzuki‘. He noticed that Suzuki had taken substantial amount of royalty, from Maruti, without contributing anything towards brand development and penetration in Indian market. It was further noted that Maruti had incurred expenditure amounting to Rs.4,092 crores on advertisement, marketing and distribution activity, which had helped in creation of ‗Maruti‘ brand logo and due to which Maruti had become the number one car Company in India. Computing the value of the brand at cost plus 8% method, he assessed the value of the brand at Rs.4,420 crores. Maruti was asked to show cause as to why the value of Maruti Brand be no taken at Rs.4,420 crores and why the international transaction be not adjusted on the basis of its deemed sale to Suzuki. 6. Maruti, in its reply dated 8.9.2008, stated that at no point of time had there been any transfer of ‗Maruti‘ brand or logo by it, to Suzuki, which did not have any right at all to use that logo or trademark. It was submitted by Maruti that a registered trademark could be transferred only by a written instrument of assignment, to be registered with the Registrar of Trademarks, and no such instrument had been executed by it, at any point of time. It was also brought to the notice of the TPO that Maruti continued to use its brand and logo ‗Maruti‘ on its products and even on the rear side of models Esteem, ‗Maruti 800‘ and ‗Omni‘, the ‗Maruti‘ trademark was being used along with the word ‗Suzuki‘. It was further submitted that Maruti continued to use the trademark/logo ‗Maruti‘ in all its advertisements, wrappers, letterheads, etc. It was also submitted by Maruti that Suzuki, on account of its large shareholding in the company and because of strong competition from the cars introduced by multinationals in India, had permitted them to use the ‗Suzuki‘ name and logo so that it could face the competition and sustain its market share, which was under severe attack. It was also submitted that Suzuki had not charged any additional consideration for use of their logo on the vehicles manufactured by Maruti and there was no question of any amount of revenue being transferred from the tax net of Indian exchequer to any foreign tax jurisdiction. It was submitted that Maruti had, in fact, earned significantly larger revenue on account of the cooperation extended by Suzuki and that larger revenue was being offered to tax in India. The jurisdiction of the TPO was thus disputed by WP.(C).No. 6876/2008 ‗Maruti‘ in the reply submitted to him. He was requested to withdraw the notice and drop the proceedings initiated by him.7.Since Maruti did not get any response to the jurisdictional challenge and the TPO continued to hear the matter on the basis of the notice issued by him, without first giving a ruling on the jurisdiction issue raised by it, this writ petition was filed seeking stay of the proceedings before the TPO. 8. Vide interim order dated 19.9.2008, this Court directed that the proceedings pursuant to the show-cause notice may go on, but, in case any order is passed, that shall not be given effect to. 9.Since the TPO passed a final order on 30[th] October, 2008, during the pendency of the writ petition and also forwarded it to the Assessing Officer of the petitioner, the writ petition was amended so as to challenge the final order passed by the TPO. 10.In the final order passed by him, the TPO came to the conclusion that the trademark ‗Suzuki‘, which was owned by Suzuki Motor Corporation, had piggybacked on the Maruti trademark, without payment of any compensation by Suzuki to ‗Maruti‘. He also came to the conclusion that the trademark WP.(C).No. 6876/2008 ‗Maruti‘ had acquired the value of super brand, whereas the trademark ‗Suzuki‘ was a relatively weak brand in Indian market and the promotion of the co-branded trademark ‗Maruti Suzuki‘ had resulted in: ―(a) Use of ―Suzuki‖ – trademark of the AE (b) Use of ―Maruti‖ – trademark of the assessee. (c) Reinforcement of ―Suzuki‖ trademark which was a weak brand as compared to ―Maruti‖ in India. (d) Impairment of value of ―Maruti‖ trademark due to cobranding process.‖ 11. The TPO noted that Maruti had paid royalty of WP.(C).No. 6876/2008 ‗Maruti‘ had acquired the value of super brand, whereas the trademark ‗Suzuki‘ was a relatively weak brand in Indian market and the promotion of the co-branded trademark ‗Maruti Suzuki‘ had resulted in: ―(a) Use of ―Suzuki‖ – trademark of the AE (b) Use of ―Maruti‖ – trademark of the assessee. (c) Reinforcement of ―Suzuki‖ trademark which was a weak brand as compared to ―Maruti‖ in India. (d) Impairment of value of ―Maruti‖ trademark due to cobranding process.‖ 11. The TPO noted that Maruti had paid royalty of Rs.198.6 crores to Suzuki in the year 2004-05, whereas no compensation had been paid to it by Suzuki, on account of its trademark having piggybacked on the trademark of Maruti. Since Maruti did not give any bifurcation of the royalty paid to Suzuki towards licence for manufacture and use of trademark, the TPO apportioned 50% of the royalty paid in the year 2004-05, to the use of the trademark, on the basis of findings of piggybacking of ‗Maruti‘ trademark, use of ‗Maruti‘ trademark on co-branded trademark ‗Maruti Suzuki‘, impairment of ‗Maruti‘ trademark and reinforcement of ‗Suzuki‘ trademark, through co-branding process. The arm‘s length price of royalty WP.(C).No. 6876/2008 paid by Maruti to Suzuki was held as Nil, using CUP Method. He also held, on the basis of the terms and conditions of the agreement between Maruti and Suzuki that Maruti had developed marketing intangibles for Suzuki in India, at its cost, and it had not been compensated for developing those marketing intangibles for Suzuki. He also concluded that non-routine advertisement expenditure, amounting to Rs.107.22 crores, was also to be adjusted. He, thus, made a total adjustment of Rs.2,06,52,26,920/- and also directed that the Assessing Officer of Maruti shall enhance its total income by that amount, for the assessment year 2005-06. 12.In the Counter Affidavit, the respondent has taken a preliminary objection that the merits of the transfer pricing order cannot be examined in a writ petition, since an alternative remedy is available to the assessee by way of appeal before the Commissioner of Income Tax (Appeals). It has also been submitted that the petition itself is not maintainable as the cause of action i.e., the impugned show cause notice was not acted upon. In the counter affidavit filed by him, the respondent has alleged that after considering the reply of the assessee, the TPO had dropped the idea of making adjustment of Rs 4420 crore on account of deemed sale of ‗Maruti‘ WP.(C).No. 6876/2008 trademark to Suzuki, as was proposed in the show cause notice. It is further stated that, later on, the TPO had issued a detailed questionnaire clarifying that in this case transfer of economic value of ‗Maruti‘ brand, which was a super brand in India, to Suzuki brand, a well known brand in Japan but less known brand in India, was involved, through replacement of the logo fixed on the cars and co-branding of both the trademarks ‗Maruti‘ and ‗Suzuki‘. According to the respondent, the TPO never acted upon the show cause notice in making adjustment to the international transactions and that in the fresh queries to the petitioner company with regard to quantum of transfer of economic value, embedded in ‗Maruti‘ trademark, to ‗Suzuki‘ trademark, and justification for making royalty payment to ‗Suzuki‘, he had also raised the issue of non-reimbursement of the expenditure, incurred by the petitioner, on brand promotion of Suzuki. It has also been stated in the counter affidavit that the issues raised in the order sheets of the TPO were replied by the petitioner and were duly considered before taking the decision. 13.On merits, it has been stated that since the petitioner had paid running royalty of Rs 198.6 Crore to Suzuki in the year under consideration, for licence to manufacture and sell WP.(C).No. 6876/2008 13.On merits, it has been stated that since the petitioner had paid running royalty of Rs 198.6 Crore to Suzuki in the year under consideration, for licence to manufacture and sell WP.(C).No. 6876/2008 under the cobranded trademark ‗Maruti Suzuki‘ and trademark ‗Suzuki‘ and for after-sale service of such vehicles, the transaction between the parties, which were Associate Enterprises, was an international transaction under Section 92B of the Income Tax Act and therefore, the TPO had examined as to whether the payment of royalty to Suzuki was at arm‘s length price. According to the respondent, it was evident from the agreement between Maruti and Suzuki that the responsibility to develop markets and promote the trademarks ‗Maruti‘, ‗Maruti Suzuki‘ and ‗Suzuki‘ was on the petitioner/assessee, which had incurred huge expenditure of Rs 204 crore on advertisement, in order to develop a market for the vehicles, which included promotion of the trademark ‗Suzuki‘, co-branded trademark ‗Maruti Suzuki‘ and the trademark ‗Maruti‘, though no part of this expenditure was reimbursed by Suzuki to Maruti. It has been stated that Suzuki had enjoyed all the benefits of such expenditure in the form of dividend income of its share holding in the petitioner company, which was more than 50%, as well as in the form of royalty, which was payable on the basis of sale of vehicles/component, in addition to a lump sum component. The case of the respondent, in the counter affidavit, is that an WP.(C).No. 6876/2008 amount of Rs.99.3 Crore, out of the total royalty of Rs.198.6 crore paid to Suzuki in the year in question, could be attributed to use of co-branded trademark ‗Maruti Suzuki‘ and the trademark ‗Suzuki‘. The respondent claimed that since the trademark ‗Suzuki‘ as well as the trademark ‗Maruti‘ were used in the co-branded trademark ‗Maruti Suzuki‘, no royalty could be paid by Maruti to Suzuki for use of co-branded trademark because ‗Maruti‘ was a super brand in India whereas ‗Suzuki‘ was a weaker brand in India and co-branding of both the trademarks together had resulted in migration of the economic value embedded in the ‗Maruti‘ trademark to the ‗Suzuki‘ trademark, for which no compensation was paid to the petitioner. It is also claimed by the respondent that no independent entity will undertake brand promotion of another independent party at its own expense, without any compensation from the third party. 14. The first contention raised before us, by the learned senior counsel for the petitioner, is that while passing the final order dated 30.10.2008 the TPO has completely abandoned the grounds set out in the notice issued by him on 27[th] August, 2008 for initiating transfer pricing proceedings against the petitioner and no other notice was thereafter issued to the 14. The first contention raised before us, by the learned senior counsel for the petitioner, is that while passing the final order dated 30.10.2008 the TPO has completely abandoned the grounds set out in the notice issued by him on 27[th] August, 2008 for initiating transfer pricing proceedings against the petitioner and no other notice was thereafter issued to the petitioner. On perusing the show-cause notice, we find that the only ground given in the show-cause notice dated 27.8.2008 was that change of the brand logo ‗M‘ of Maruti to Suzuki during the year 2004-05 amounted to sale of the brand ‗Maruti‘ to Suzuki. It was for this reason that the TPO asked Maruti to show-cause as to why the entire amount spent by it on promoting the brand ‗Maruti‘ during the period 1989 to 2004-05 be not taken as the value of ‗Maruti‘ brand which was deemed to have been sold by Maruti to Suzuki. There was absolutely no allegation in the show-cause notice that the trademark Suzuki had piggybacked on the trademark Maruti. There was no averment in the show-cause notice that Maruti had paid royalty of Rs.198.6 crores to Suzuki, during the year 2004-05, for licence to manufacture and licence to use the trademark ‗Suzuki‘. In fact, there was no averment in the show-cause notice that ‗Maruti‘ had paid some royalty to Suzuki for use of co-branded trademark ‗Maruti Suzuki‘, that there had been impairment in the value of the trademark ‗Maruti‘ or that the use of co-branded trademark had resulted in reinforcement of the trademark ‗Suzuki‘. There was no reference at all to the joint trademark in the show-cause notice issued by the TPO. Maruti was not asked to show cause as to why the arm‘s length price in respect of the royalty paid by it to Suzuki be not determined taking into consideration piggybacking on the ‗Maruti‘ trademark, and use of ‗Suzuki‘ trademark in the co-branded trademark. In fact, the show-cause notice was based on the sole premise that Maruti had sold its trademark which it had built at the cost of Rs.4,092 crores, to Suzuki, and that there was a deemed sale of that trademark by Maruti to Suzuki. 15. The show-cause notice did not contain any proposal by the TPO to adjust what he termed as expenditure beyond the bright line limit or non-routine advertisement expenditure on the ground that the advertisement expenditure, was in fact incurred on promoting the brand of Suzuki.16. A perusal of the terms and conditions contained in the agreement between Maruti and Suzuki clearly shows that Maruti has not transferred its brand or logo to Suzuki. No right was given to Suzuki to use either the brand or the logo of Maruti. It is only Maruti which was given the right to use the brand name and logo of Suzuki on its products. The order of the TPO also does not show any use of the brand name ‗Maruti‘ or logo ‗M‘ by Suzuki. It is an admitted position that the petitioner continues to use the name ‗Maruti‘ on all its WP.(C).No. 6876/2008 WP.(C).No. 6876/2008 products, including passenger vehicles and spare parts, as also in the advertisements and other promotional activities undertaken by it. Moreover, the brand name or logo of ‗Maruti‘ has not been transferred to Suzuki nor has the same been used by Suzuki either in India or in any other country. 17.In terms of clause 5.02 of the Agreement, all products and parts manufactured, assembled and sold in India by Maruti, pursuant to the Agreement, are required to bear the trademark ‗Maruti Suzuki‘ and Maruti is also required to use and apply the same trademark on containers, packaging and wrappings used for and in connection with the sale of such parts and products in India. Thus, not only does the petitioner continue to use the name ‗Maruti‘, it is under a contractual obligation to Suzuki to continue to use that name in conjunction with the name Suzuki. It is true that there is use of the name ‗Maruti‘ in the co-brand ‗Maruti Suzuki‘, on the products manufactured and sold by Maruti in India, as well as on their containers, packaging, wrapping etc. But, Suzuki, even if it so wants, cannot use the joint trademark ‗‗Maruti‘ Suzuki‘ either on its products or on the containers packaging, wrapping etc., which may be used by it in connection with its products. There is a provision in the Agreement for WP.(C).No. 6876/2008 registration of the trademark ‗Maruti Suzuki‘ in the names of the Maruti and Suzuki but, admittedly, no such registration has actually taken place. Whenever such a registration takes place, it can possibly be said that benefit of the name ‗Maruti‘ on account of its use in the joint trademark ‗Maruti Suzuki‘ does accrue to Suzuki but, then, the benefit of the name ‗Suzuki‘ in the joint trademark will also simultaneously accrue to Maruti. We need not dwell further into this aspect of the matter, since no such registration has taken place so far.18. It, therefore, cannot be disputed that the TPO has failed to make out any case of sale of the brand name ‗Maruti‘ or logo ‗M‘ by the petitioner to Suzuki. The ownership and use of the trademark as well as the logo continues to vest in the petitioner company. In fact the TPO himself noted in para 7.11.3 of the order dated 30.10.2008 that it was nowhere the intention to convey that Maruti had transferred its brand to Suzuki and that the same was being used by Suzuki also. Hence, there is no escape from the conclusion that the case as set up in the show-cause notice was abandoned by the TPO, while passing the final order. In fact, the respondent himself has taken the stand that the show cause notice dated August 27, 2008 was not acted upon and the TPO had made out an altogether new case, far removed from the basis on which the original notice was given by him. 19.The learned counsel for the respondent drew our attention to the proceedings dated 6.10.2008, 13.08.2008 and 16.10.2008 whereby the petitioner was asked to give the following information and contended that by seeking this information the TPO had clearly conveyed to the assessee, the basis and the grounds on which adjustment was made by him in the final order dated 30.10.2008:- 13.08.2008 ―iv) Assessee is not a legal owner of ―S‖ Trademark. This trade mark is owned by A.E. How this trade mark ―S‖ was an a number of products of the assessee. The advertisement and other related expenditures are incurred for promoters of Trade Mark of which assessee had no legal right. Therefore the promotional efforts of Assessee has generated and embedded economic value in ―S‖ in which was an unknown trade mark in India AR requested to explain why para 6.38 of OEDC guidelines should not be applied in the present case. v) Further the embedded economic value in Trade Mark ―M‖ had been extinguished in favour of AE‘s Trade mark ―S‖. Therefore, the marketing intangible inbuilt in trade Mark ―M‖ had been extinguished in favour of trademark of ―S‖. AR asked to file final submission if any on the above mentioned issue. The case adjourned for final hearing for v) Further the embedded economic value in Trade Mark ―M‖ had been extinguished in favour of AE‘s Trade mark ―S‖. Therefore, the marketing intangible inbuilt in trade Mark ―M‖ had been extinguished in favour of trademark of ―S‖. AR asked to file final submission if any on the above mentioned issue. The case adjourned for final hearing for 16.10.2008 at 11 A.M. on request of ARS. 16.10.2008 The case was discussed at length with AR‘s on all aspect relating to brand promotion, marketing intangibles, royalty payment modelwise and industry analysis too.‖ 20. 20.We are unable to accept the contention that the above referred information sought by TPO could be an adequate substitute for the notice required to be issued to the petitioner company. When the show cause notice issued to the petitioner company is based solely on the premise that the trademark ‗Maruti‘ had been transferred by the petitioner company to Suzuki and the TPO does not convey, to the noticee that he had abandoned the show cause notice issued by him and was now proceeding on an altogether different ground for the purpose of making adjustments to its income, seeking an information of this nature, without expressly conveying the grounds for the proposed adjustment cannot be said to be an appropriate substitute for the show cause notice required to be issued to the petitioner company. The case made out by the TPO in the final order dated 30.10.2008 is that since the joint trademark ‗Maruti Suzuki‘ included the word Suzuki belonging to the Associate Enterprises, that trademark had piggybacked on the Maruti trademark of the petitioner company, without WP.(C).No. 6876/2008 payment of any compensation by Suzuki to Maruti. We cannot discern such a ground from the above referred proceedings. There is absolutely no reference to the joint trademark ‗Maruti Suzuki‘ in the above referred proceedings, which relate only to the logo ‗S‘. These proceedings do not indicate that on account of use of the joint trademark ‗Maruti Suzuki‘, the value of the trademark ‗Maruti‘ had been impaired and the value of the trademark Suzuki had gone up. Though it was stated in the proceedings that advertisements and other related expenditure was incurred for promotion of trademark on which the assessee had no legal right, it was not stated that these expenditures were incurred on promoting the joint trademark ‗Maruti Suzuki‘ or that they were not in line with the expenses that are incurred by comparable independent enterprises. It appears that while recording these proceedings, the TPO had only the logos, ‗S‘ of Suzuki and ‗M‘ of ‗Maruti‘, in his mind and he was not referring to the joint trademark ‗Maruti Suzuki‘ being used at the rear of the vehicles being manufactured, sold and serviced by Maruti. 21.The purpose of a show cause notice being to enable the assessee to meet the grounds, on which the arm‘s length price paid by him was sought to be rejected and adjustment WP.(C).No. 6876/2008 was proposed to be made to its income, the grounds to be conveyed to the assessee needed to be clear, cogent, specific and unambiguous. In Uma Nath Pandey & Others Vs. State of UP & Another: (2009) 12 SCC 40, Supreme Court, inter alia observed as under: ―Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him.‖ In Biecco Lawrie Limited & Another Vs. State of West Bengal & Another: (2009) 10 SCC 32, Supreme Court, inter alia, observed as under: ―Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him.‖ In Biecco Lawrie Limited & Another Vs. State of West Bengal & Another: (2009) 10 SCC 32, Supreme Court, inter alia, observed as under: ―One of the essential ingredients of fair hearing is that a person should be served with a proper notice, i.e., a person has a right to notice. Notice should be clear and precise so as to give the other party adequate information of the case he has to meet and make an effective defence. Denial of notice and opportunity to respond result in making the administrative decision as vitiated. The adequacy of notice is a relative term and must be decided with reference to each case. But generally a notice to be adequate must contain the following: (a) time, place and nature of hearing; (b) legal authority under which hearing is to be held; (c) statement of specific charges which a person has to meet.‖ Since the query of the TPO as recorded in the above referred proceedings, was confined to use of logo, there was no occasion for the assessee company to assume, on the basis of these proceedings that it was required to justify the use of joint trademark ‗Maruti Suzuki‘ on its products, and in their marketing, promotion and advertising, without any compensation from Suzuki. 22.Section 92CA of Income Tax Act, 1961 (hereinafter referred to as the Act) provides that where the assessee has entered into an international transaction and the Assessing Officer considers it necessary or expedient to do so he may, with the previous approval of the Commissioner, refer computation of arm‘s length price, in relation to the said international transaction, under Section 92C, to the TPO. Since the reference to the TPO is not mandatory, ordinarily the Assessing Officer would make reference to TPO in those cases, where he is not in agreement with the price disclosed by the assessee or where, on account of the complex nature of the transaction, he feels that the arm‘s length price needs to be WP.(C).No. 6876/2008 determined by the TPO. When such a reference is made, the TPO is statutorily required to serve a notice on the assessee requiring him to produce or cause to be produced any evidence on which the assessee may rely in support of the computation, made by him, of the arm‘s length price, in relation to the international transaction in question. Unless the assessee knows what are the grounds which impelled the TPO to discard the price disclosed by him and to propose an adjustment in its income, while determining arm‘s length price in relation to the international transaction made by it, it is not possible for him to meet those grounds and satisfy the TPO that the price agreed by it for the transaction in question was the right arm‘s length price and there was no justification to make any adjustment in its income. The assessee can produce the relevant information and documents before the TPO only if he knows the precise case which he is expected to meet before the TPO. It is meaningless to give opportunities of leading evidence to the assessee, without first letting him know, what he is expected to meet. In case the TPO, feels the necessity of making adjustments to the income of the assessee only after he has considered the evidence produced before him, by the assessee, in support of the price agreed by him for transaction in question, he needs to disclose to the assessee, at that very stage, the ground on which wants to make the adjustment to his income, and then give him adequate opportunity to reply to those grounds and lead evidence in support thereof.23.Our attention has not been drawn to any proceedings conveying to the assessee, that (i) the TPO proposed to make adjustment to its income on the grounds that on account of use of the name ‗Suzuki‘ in the joint trademark ‗Maruti Suzuki‘, (ii) some benefit had accrued to Suzuki in the form of building and strengthening of its brand ‗Suzuki‘ and (iii) that the TPO felt that the advantage, which accrued to ‗Suzuki‘ had neutralized the benefit which ‗Maruti‘ had obtained by use of the trademark and name of Suzuki, on its products and accordingly, he proposed to make adjustment in its income. Our attention has not been drawn to any proceedings requiring the petitioner-company to produce evidence justifying use of the joint trademark ‗Maruti Suzuki‘ without payment of any compensation by Suzuki to Maruti, while entailing payment of running royalty to Suzuki, by Maruti, for use of the technical assistance from Suzuki, along with permission to use its trademark ‗Suzuki‘. No proceeding, conveying to the assessee, that the expenses incurred by it on advertising and promotion of its products and parts were higher than what a comparable independent enterprise would have incurred and such higher expenditure on promotion, marketing and advertising had resulted in strengthening and building the trademark of ‗Suzuki‘ in India and that the TPO proposed to make adjustment in its income accordingly, has been brought to our notice. Similarly, no proceedings requiring the petitioner Company to justify the expenditure incurred on advertisement and promotion of its products under the joint trademark ‗Maruti Suzuki‘ has been brought to our notice. 24.As held by this Court in Moserbaer India Limited & Others Vs. Additional Commissioner of Income Tax & Another, (2009) 316 ITR 1 (Delhi), the provision of sub-Section (3) of Section 92CA casts a duty on the TPO to afford an opportunity of an oral hearing to the assessee. Oral hearing would be meaningless, unless the assessee knows the grounds on which adjustment to its income is proposed to be made by the TPO while determining arm‘s length price in respect of international transaction made by it. We would like to note here at the cost of repetition that no notice other than the notice dated 27.8.2008 was given to the petitioner by the TPO. The notice dated 27.8.2008 having admittedly been abandoned and not acted upon, it was obligatory for the TPO to either issue a fresh notice requiring the assessee to produce such evidence as it might be having in its possession, to justify payment of royalty for use of the joint trademark ‗Maruti Suzuki‘ on all its products and their containers, packaging etc as well as such evidence as it might have in its possession, to justify the expenditure incurred on advertisement and promotion of its products under the joint brand name ‗Maruti Suzuki‘. This notice ought to have been issued at the very threshold of the proceedings initiated by the TPO. In any case, the bare minimum that was expected from TPO, for compliance of the statutory requirement of giving notice envisaged in sub-Section (2) of Section 92CA, and to comply with the principles of natural justice which are necessarily required to be observed, before passing an order entailing civil consequences, was to record the grounds on which the adjustment was proposed to be made by him, in the income of the petitioner Company, in a precise, clear and unambiguous language, in the proceedings recorded by him, get it signed from the authorized representative of the assessee, give it an opportunity to file a reply to those grounds and to produce such evidence as it might have in its possession to show that WP.(C).No. 6876/2008 WP.(C).No. 6876/2008 no such adjustment is called for in its case. If the procedure adopted by the TPO does not meet even this minimum requirement, it cannot be said to be a fair and reasonable procedure required to be followed by an authority exercising quasi-judicial and/or administrative powers, entailing serious consequences for the assessee in the form of not only additional tax liability on account of addition to the income but also on account of the penalty that may be imposed upon it under Section 271 of the Act, Explanation 7 to which specifically provides that in the case of the assessee who has entered into an international transaction, in the event of any amount being allowed or disallowed in the process of computation of its income under sub-Section (4) of Section 92C, will be deemed to represent the income, in respect of which particulars have been concealed, or inaccurate particulars have been furnished, unless the assessee proves that the price charged or paid in such transaction was computed in accordance with the provision contained in Section 92C and the manner prescribed under that Section, in good faith and with due diligence. Thus, the adjustment made by the TPO in the arm‘s length price could be regarded as concealment of particulars of income or furnishing inaccurate WP.(C).No. 6876/2008 particulars under Section 271(1)(c) of the Act. Therefore, the order passed by the TPO visiting Maruti with civil consequences, having wide ramifications for it, it was necessary for him to follow the expected norms in the matter of issuing show-cause notice and giving opportunity to produce evidence, followed by opportunity of oral hearing to the assessee Company. 25.It was submitted by the learned counsel for the respondent that in case this Court is of the view that requisite notice has not been given to the petitioner Company, the mat