Tuesday, May 2, 2017

Accretion of Hyundai brand due to its usage on Cars manufactured in India isn’t brand promotion: ITAT

a) Assessee-company was fully owned subsidiary of South Korean automobile giant Hyundai Motor Company (HMC). It was manufacturing cars under the brand name 'Hyundai'- a brand which is legally owned by the HMC.

b) As per the agreement entered into by assessee with HMC Korea, it was mandatory to use the badge with trademark Hyundai in every vehicle manufactured by it.

c) Transfer Pricing Officer (TPO) was of the view that by doing so "the assessee had significantly contributed to the development of Hyundai brand in Indian market" and the HMC Korea is, thus, "benefited due to brand promotion activity carried out by the assessee company".

d) TPO faulted the assessee for not having benchmarked "the international transactions relating to brand development. IT proposed ALP adjustment in respect of compensation that the assessee should have received for brand development.

e) Aggrieved by this draft proposal, assessee appealed before the Dispute Resolution Panel (DRP) which confirmed order of TPO. Assessee filed instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) It was an undisputed position that the foreign AE owns a valuable brand, i.e. Hyundai, and this brand had a certain degree of respect and credibility all over the globe including, of course, in the Indian market. When assessee used this brand name in the name of the models of vehicles manufactured by him, it do indeed amount to an advantage to the assessee.

2) Use of brand name owned by the AE in the motor vehicles manufactured by the assessee did not amount to a benefit to the AE of the assessee. An incidental benefit thought in the sense that increased visibility to this trade name does contribute to increase in brand valuation of the brand name.

3) Undoubtedly, 'provision for services' is included in the definition of 'international transaction' under section 92B, but then accretion in brand value due to use of foreign AEs brand name in the name of assessee's products could not be treated as service either.

4) An accretion in the brand valuation of a brand owned by the AE did not result in profit, losses, income or assets of the assessee-company. Therefore, and it could not result in an international transaction. [2017] 81 taxmann.com 5 (Chennai - Trib.) 

Changes proposed in Ind AS 101 First-time adoption of Indian Accounting Standard

An exposure draft on Ind AS 101 First-time adoption of Indian Accounting Standard has been recently issued. Key changes proposed in Ind AS 101 are as follows:-

1. Present standard

Para D7AA of Ind AS 101 provides that a first-time adopter to Ind ASs may elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind ASs, measured as per the previous GAAP. Further, such carrying value can be used as its deemed cost as at the date of transition after making necessary adjustments in accordance with paragraph D21and D21A, of this Ind AS. If an entity avails the option under this paragraph, no further adjustments to the deemed cost of the property, plant and equipment so determined in the opening balance sheet shall be made for transition adjustments that might arise from the application of other Ind ASs.

2. Proposed scenario

The exposure draft proposes that an entity can make further adjustments to the deemed cost that might arise from the application of other Ind AS. Accordingly there is no such requirement in the exposure draft that if an entity avails the option under para D7AA then no further adjustment can be made in the deemed cost.

3. Applicability date

Proposed changes, if accepted, can be applied from annual periods beginning on or after1st April, 2017.