$~83
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 29th April, 2019
+ W.P.(C) 4467/2019 & CM APPL.19840/2019
VODAFONE IDEA LTD. ..... Petitioner
Through: Mr.Deepak Chopra, Mr.Harpreet
Singh Ajmani & Mr.Manasvini
Bajpai, Advocates
versus
ASSISTANT COMMISSIONER OF
INCOME TAX & ORS. ..... Respondents
Through: Mr.Ajit Sharma, Sr.Std.Counsel with
Mr.Adeeba Majahid, Jr.Std.Counsel
& Mr.Ashutosh Senger, Advocate
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
S. RAVINDRA BHAT, J. (OPEN COURT)
%
1. Issue notice. Mr.Ajit Sharma, Senior Standing Counsel accepts
notice.
2. By the order impugned in this writ petition, the ITAT, according to
the petitioner, has conclusively determined certain issues on which it had at
the same time directed a remand. This Court had on 01.06.2018, in the
assessee's appeal for the concerned year [ITA No.660/2018], directed as
follows:
W.P.(C) 4467/2019 Page 1 of 6
"The Court has considered the submissions of the parties; the
ITAT remitted for fresh reconsideration of the issue relating to
advertising, marketing and promotion (AMP) expenses.
Furthermore, it also, through stray sentences in the impugned
order not premised on any reason in no manner observed that
the benchmarking of international transactions pertaining to
payment of royalty cannot be done by using comparables with
transactions entered into between two foreign parties. This
observation in the opinion of the Court is not warranted to.
Having regard to the fact that all materials were available
with it, the ITAT is directed to consider the transactions
involving AMP expenditure as well as the issue of royalty. In
this regard its observations with respect to the comparables
used by the assessee vis-a-vis the two foreign parties shall not
be treated conclusive. The ITAT shall carry out necessary
inquiry if need be by resorting to a limited remand to the TPO
or DRP as the case may be having regard to the overall facts
and circumstances and decide whether AMP expenses
required in the present case involve international transaction,
if so, to what extent."
3. By the impugned order, passed pursuant to the remit by this Court,
the ITAT noticed certain facts and discussed certain relative merits
observing as follows:
"22. On the aspect of quantitative filters adopted by the
assessee are with related to the payments. In the agreement
entered into by the assessee the payment terms are payment of
specified percentage over the net service revenue. However,
the assessee adopted a filter of payment terms of percentage of
gross sales. There is no such condition in any of the agreement
entered into by the assessee with both the parties with respect
to the payment of fees on gross sales. There is no justification
found in the transfer pricing study report with respect to the
above filter applied by the assessee.
W.P.(C) 4467/2019 Page 2 of 6
23. Therefore one of the quantitative filters applied by the
assessee also deserves to be rejected is devoid of any
justification.
xxxx xxxx xxxx xxxx
25. Now coming to the single agreement which was found to be
comparable by the assessee, This agreement was where the
licensor is Motorola incorporation USA and the licensee is
forward industries incorporation USA, the period of the
agreement was January 2008 to March 2009 and services
were trademark license fees for the use of Motorola signature
and the M logo (Emsignia) where the payment of royalty was
7% of net sales. Therefore the assessee stated that this is the
only agreement which is between 2 foreign parties, both from
USA is the only comparable, hence applying CUP method,
comparing transaction of its AE with that solitary transaction
stated that it is transaction of payment of royalty is at arm's-
length. It is important to note that assessee is paying only
0.15% and 0.30% as trademark license fees and it is
comparing the transaction where the royalty was paid as 7%
of net sales, which is almost 50 times more than what the
assessee has paid. Such a huge margin between the
comparable price stated by the assessee and actual
international transactions entered into by the assessee clearly
makes the comparability analysis unjustified and devoid of any
reasoning.
xxxx xxxx xxxx xxxx
27. As the Honourable High court has directed ITAT to
determine the ALP of the Royalty ( Trademark License fees)
payment and only comparable was stated to be payments by
Forward Industries Inc to Motorola inc, and further as
assessee did not provide any details about the agreement
between Motorola and forward incorporation, we are duty-
bound to make our own research on the issue.
28. We looked at the functional profile of the Forward
Industries inc from (yahoo. Finance. Co) which shows that
Forward Industries, Inc., together with its subsidiaries,
W.P.(C) 4467/2019 Page 3 of 6
designs, markets, and distributes carry and protective
solutions primarily for hand held electronic devices. It
provides carrying cases and other accessories for medical
monitoring and diagnostic kits; and other portable electronic
and non-electronic products, such as sporting and recreational
products, bar code scanners, smartphones, GPS location
devices, tablets, firearms, and other products. The company
sells its products to original equipment manufacturers in the
Americas, the Asia-Pacific, Europe, the Middle East, and
Africa. Forward Industries, Inc. was founded in 1954 and is
headquartered in West Palm Beach, Florida.
30. In view of this, the transfer pricing study document
prepared by the assessee
for benchmarking the royalty payment does not inspire any
confidence but merely eyewash.
xxxx xxxx xxxx xxxx
32. Though the honourable High Court has directed us to
determine the arm's length price of the royalty payment,
however very kindly looking at the complexity of the issue,
honourable High Court was also pleased to authorize the
coordinate bench to carry out necessary enquiries and if need
be to resort to a limited remand to the learned transfer pricing
officer or dispute resolution panel.
33. During the course of hearing both the parties also
submitted that identical issue is involved with respect to the
determination of the arm's-length price of the international
transaction of the payment of royalty to associated enterprises
in all those years from assessment year 2009 - 10 to 2012- 13.
Therefore, it was requested that if the issues remanded to the
learned transfer-pricing officer then similar direction to both
the parties may be given for all those years and all those
appeals may be disposed of with respect to the above ground
based on the above limited remand. Therefore, at the request
of the parties we also agree to give similar directions for all
these years.
34. Therefore, in view of
W.P.(C) 4467/2019 Page 4 of 6
a) the inadequate facts about the product
comparability for technology for which trademark
fees is paid as Royalty
b) Absence of availability of agreement between two
foreign parties, as well as terms, economic
indicators, risk etc
c) No adjustment on account of geographical
difference between two prices
d) Use of database PowerK without justification
and not using other specific databases
e) Use of inappropriate filters
35. Therefore, for all these years, i.e. A Y 2009-10 to 2012- 13,
We direct limited remand to the ld TPO to examine the
comparability analysis for determination of the arm's-length
price of the royalty fees paid by the assessee. For the
examination of the learned transfer pricing officer we direct
the assessee to submit a fresh comparability analysis before
the learned transfer pricing officer justifying the use of various
database with the rationale for using them, justifying each and
every filter that assessee would like to use, justify the various
differences in the prices and it is adjustment to be made and
all the necessary details before the learned transfer pricing
officer on or before 15/04/2019. The learned transfer-pricing
officer will also examine them, also make his own
determination of ALP of Royalty on or before 05/05/2019, and
seek any explanation/submission clarification on or before
22nd of May 2019. Based on examination and on his finding
on the submission of the assessee, ld TPO/AO is directed to
submit on or before 30/05/2019 remand report before the
coordinate bench and the copy to the assessee on the
determination of ALP of the above royalty payment. Needless
to say that both the parties are free to decide any other method
or mechanism of determination of ALP of above royalty
payment, if in case it is found that CUP is not the correct
method in absence of availability of the comparable data. After
W.P.(C) 4467/2019 Page 5 of 6
that on 03/06/2019, the matter is posted for hearing before the
coordinate bench. Interim order pronounced in the open court
on 25/03/2019."
4. The assessee is aggrieved and contends that though characterized as
an interim order and not conclusive of the merits, yet, the finality precludes
the assessee/petitioner from urging the grounds with respect to the precise
issues that were subject to remand and for which the ITAT felt the need
fails to make a further remand and set up inquiry by the TPO.
5. This Court is of the opinion that till the remand directed by the ITAT
is worked out and a report on that aspect is received, the ITAT's
observations in the impugned order, particularly the ones quoted above, or
any other observation like them which tend to indicate finality, shall in no
way be treated as conclusive of the merits. All rights and contentions of the
parties are accordingly kept open. The concerned Bench of the ITAT
dealing with the final merits shall be uninfluenced by the said observations.
6. The writ petition is disposed of.
7. Copy of the order be given dasti.
S. RAVINDRA BHAT, J
PRATEEK JALAN, J
APRIL 29, 2019
,,hkaur/pv
W.P.(C) 4467/2019 Page 6 of 6
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