Monday, August 12, 2013

Transaction at uniform global price can’t be assumed to be at ALP unless comparability analysis is done

Purchase transactions could not be held to be at arm’s length where no comparability analysis was done, simply because AE supplied products globally at listed price.

The assessee, a wholly owned subsidiary of 'K', Netherlands, had international transactions with its Associated Enterprises (‘AEs’). In its TP report, assessee applied RPM. However, it did not provide the working or basis of its benchmarking of arm’s length price and claimed the transactions to be at ALP. TPO rejected assessee’s claim and made upward adjustment. The CIT(A) confirmed the order of TPO.

ITAT remanded the matter with following observations:

1) The fact that the AE supplied the products at listed price worldwide could not justify the assessee’s stand because no analysis had been done on the supplies made by the AE to the other countries;

2) If any comparability analysis would have been carried out in case of other parties to whom the AE had supplied the same material, then such a plea of the assessee could have been accepted;

3) The foundation of the TP mechanism is to determine the most appropriate ALP by following any of the prescribed method. The initial burden is on the assessee to demonstrate as to which appropriate method should be followed for carrying out comparability analysis of controlled transactions with the uncontrolled transactions for benchmarking its transaction and justifying that it is at ALP;

4) Therefore, the entire issue needed to be restored back to the file of the TPO for de novo adjudication after taking into consideration what should be the most appropriate method (that is, whether RPM or CUP method), and the onus would be on the assessee to demonstrate as to why CUP method had to be followed and what would be the comparables based on which comparability analysis could be done - Kodak Polychrome Graphics (I) (P.) Ltd. v. ACIT [2013] 36 42 (Mumbai - Trib.)

No registration for a trust seeking employment for students in lieu of subscription fees

Activities of assessee-trust, of charging fees for providing employment opportunities to students of a college, were not charitable in nature
In the instant case the assessee-trust filed the application seeking registration under section 12A. The CIT rejected its application for grant of registration under section 12A on ground that trust was created to provide opportunities for students of a college (Delhi School of Economics) to seek employment; it was charging fees for the same and it was also charging subscription fees from companies who were providing employment to the enrolled students. Aggrieved assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

1) The activities of trust were focused on education of the college students. After completion of their courses, the trust provides opportunity to these students to interact with corporate and non-corporate houses approaching the college;

2) The public at large was neither eligible to become a member of the trust nor was provided any benefit by the trust, as all its activities were for the enrolled members;

Moreover, its activities couldn’t be in any manner be classified as being charitable in nature. Apart from administrative heads of expenditure, no other expenses were shown to have been incurred on any charitable activity;

4) As per the documents submitted by the assessee it couldn’t be held that the assessee's activities were charitable in nature. Therefore, the order of CIT was to be upheld - DSE-Economics Placement Cell v. DIT (Exemptions) [2013] 35 459 (Delhi - Trib.)