A.W FABER CASTELL INDIA P.LTD, MUMBAI v. DCIT 9(1)(1), MUMBAI

ITA 1018/MUM/2016 | 2011-2012
Pronouncement Date: 30-09-2016 | Result: Allowed

Appeal Details

RSA Number 101819914 RSA 2016
Assessee PAN AACCA3117H
Bench Mumbai
Appeal Number ITA 1018/MUM/2016
Duration Of Justice 7 month(s)
Appellant A.W FABER CASTELL INDIA P.LTD, MUMBAI
Respondent DCIT 9(1)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 30-09-2016
Assessment Year 2011-2012
Appeal Filed On 29-02-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER AN D SHRI SANJAY GARG JUDICIAL MEMBER IT(TP)A NO.1018/M/2016 ASSESSMENT YEAR: 2011-12 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 801 KAMLA EXECUTIVE PARK OFF. M.V. ROAD J.B. NAGAR ANDHERI (EAST) MUMBAI 400 059 PAN: AACCA3117H VS. DCIT 9(1)(1) MUMBAI 400 005 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI M.P. LOHIA A.R. & SHRI PRANAY GANDHI A.R. REVENUE BY : SHRI N.K. CHAND D.R. DATE OF HEARING : 19.05.2016 DATE OF PRONOUNCEMENT : 30.09.2016 O R D E R PER SANJAY GARG JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 31.12.2015 OF THE DISPUTE RESOLUTION PANEL [H EREINAFTER REFERRED TO AS THE DRP] RELEVANT TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A.W.FABER CASTELL (INDIA) PVT. LTD (HEREINAFTER REFERRED TO AS THE 'APPELLANT ') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMI SSIONER OF INCOME-TAX CIRCLE 9(1)(1) MUMBAI [HEREINAFTER REFERRED TO AS THE 'LEARNED AO] UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE IN COME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE 'ACT') IN PURSUANC E OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL-I (HEREINA FTER REFERRED TO AS THE 'HON'BLE DRP') ON THE FOLLOWING GROUNDS EACH OF WH ICH ARE WITHOUT PREJUDICE TO ONE ANOTHER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO/ TRANSFER PRICING OFFICER 1(1)(1) ('TPO') HAS: IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 2 GENERAL 1. ERRED IN ASSESSING THE TOTAL INCOME AT RS.3 28 4 2 910 AS AGAINST INCOME OF RS.1 35 88 741 COMPUTED BY THE APPELLANT; TRANSFER PRICING GROUNDS ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY OF RS. 1 76 02 005 2. ERRED IN DETERMINING THE ARM'S LENGTH PRICE FOR ROYALTY PAYMENT AS NIL (WITHOUT UNDERTAKING ECONOMIC ANALYSIS) AND DIS ALLOWING THE ENTIRE ROYALTY PAYMENT AMOUNTING TO RS. 1 76 02 005; 3 ERRED IN HOLDING THAT THE APPELLANT HAS FAILED T O DISCHARGE THE INITIAL ONUS OF APPLYING ONE OF THE PRESCRIBED METHOD FOR B ENCHMARKING ROYALTY PAYMENT; 4 ERRED IN REJECTING THE TRANSFER PRICING ANALYSIS UNDERTAKEN BY THE APPELLANT BY CONSIDERING THE FIPB APPROVAL AS COMPA RABLE UNCONTROLLED PRICE ('CUP'); 5. ERRED IN NOT APPRECIATING THE FACT THAT THE ROY ALTY PAYMENTS IS ALREADY BENCHMARKED UNDER TNMM ANALYSIS UNDER BUNDL ED TRANSACTION APPROACH. 6. ERRED IN HOLDING THAT THE APPELLANT SHOULD HAVE ADOPTED PROFIT SPLIT METHOD ('PSM') IN ABSENCE OF CUP DATA WITHOUT APPRE CIATING THAT PSM IS NOT APPLICABLE IN APPELLANT'S CASE; CORPORATE TAX GROUNDS DISALLOWANCE OF EMPLOYEES CONTRIBUTION TOWARDS PRO VIDENT FUNDS AND ESIC OF RS.6 11 614 7. ERRED BY DISALLOWING EMPLOYEES CONTRIBUTION TOWA RDS PROVIDENT FUND AND ESIC OF RS.6 11 614 U/S 36(1)(VA) R.W.S 2(24)(X)OF THE ACT; DISALLOWANCE OF CLAIM ON LOSS BY FIRE AMOUNTING TO RS.10 40 553 8. ERRED IN DISALLOWING CLAIM ON LOSS BY FIRE AMOUN TING TO RS.10 40 553; 3. THE BRIEF FACTS OF THE CASE AS DERIVED FROM THE IMPUGNED ORDER ARE THAT THE ASSESSEE COMPANY IS A SUBSIDIARY OF A.W. FABER - CASTELL A.G. GERMANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACT URING AND DISTRIBUTION OF STATIONERY ITEMS. ITS TOTAL TURNOVER DURING THE F.Y . WAS RS.93 CRORES OUT OF WHICH TRADING SALES WAS RS.73 CRORES AND MANUFACTUR ING SALES WAS RS.17 CRORES. THE ASSESSEE HAD ENTERED INTO VARIOUS INTE RNATIONAL TRANSACTIONS IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 3 CONSISTING OF IMPORT OF RAW MATERIAL IMPORT OF TRA DED GOODS EXPORT OF FINISHED GOODS AND ROYALTY. THE SIGNIFICANT AMONG THE SAME W ERE EXPORT OF FINISHED GOODS AMOUNTING TO RS.5.21 CRORES ROYALTY OF 1.76 CRORES AND IMPORT OF TRADED GOODS OF RS.2.55 CRORES. THE ASSESSEE BENCHMARKED T HESE TRANSACTIONS BY COMBINING ITS TRANSACTION OF IMPORT OF RAW MATERIAL IMPORT OF FINISHED GOODS AND EXPORT OF FINISHED GOODS. THE ASSESSEE UNDERTOO K TNM (TRANSACTIONAL NET MARGIN) ANALYSIS AND DETERMINED ITS PROFIT MARGIN O N MANUFACTURING ACTIVITY AT 9.73%. SIMILARLY IT ALSO DETERMINED ITS GROSS PROF IT MARGIN ON THE TRADED GOODS OF RS.73 CRORES AT 37%. THE ASSESSEE USED TWO SETS OF COMPARABLES AND BASED ON THE SAME CONTENDED THAT ITS TRANSACTIONS WERE A T ARM'S LENGTH. THE ASSOCIATE ENTERPRISE(AE) OF THE ASSESSEE I.E. A.W. FABER-CASTELL UNTERNEHMENSVERWALTUNG GMBH & CO. OWNS THE TRADEMARKS AND CORPORATE BRAND NAME. THE ASSESSEE COMPANY - FABER INDIA UTI LIZES THESE TRADEMARKS AND THE CORPORATE BRAND NAME IN RELATION TO THE MAR KETING AND THE SALE OF THE PRODUCTS PROCURED IN THE TERRITORY. IN CONSIDERATIO N OF THE GRANT OF THE LICENSE AND RIGHT TO USE THE TRADE MARKS THE ASSESSEE PAYS ROYALTY @ 3% ON SALE VALUE OF THE PRODUCT (NET OF TAXES & DUTIES). THIS TRANSA CTION WAS BENCH MARKED USING CUP (COMPARABLE UNCONTROLLED PRICE) METHOD. T HE ROYALTY AGREEMENT ALONG WITH TRANSFER PRICING STUDY REPORT WAS FURNIS HED TO THE AO. IT WAS SUBMITTED THAT THE ROYALTY PAYMENT OF THESE TRANSAC TIONS WERE AT RATES APPROVED BY VARIOUS GOVERNMENT AUTHORITIES. IN THE COURSE O F TP PROCEEDINGS THE TPO NOTED THAT THE TRANSACTION RELATING TO ROYALTY HAD NOT BEEN BENCHMARKED BY THE ASSESSEE. IT WAS HOWEVER SUBMITTED ON BEHALF OF THE ASSESSE E THAT THE ROYALTY WAS PAID IN RESPECT OF RIGHT TO USE THE TRADEMARK OWNED BY T HE AE. THE ASSESSEE PAID ROYALTY @ 3% ON THE TOTAL SALE VALUE EXCLUDING AE SALES AND SALE OF NON- BRANDED PRODUCTS. THE ASSESSEE CLAIMED THAT THE TRA NSACTION OF ROYALTY WAS AT ARM'S LENGTH UNDER CUP METHOD BY CONTENDING THAT TH E SAME WAS COVERED BY THE APPROVAL RECEIVED FROM THE GOVERNMENT OF INDIA MINISTRY OF INDUSTRIES DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTIONS SEC RETARIAT FOR INDUSTRIAL IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 4 APPROVALS. IT WAS CONTENDED THAT THOUGH THE APPROVE D RATE FOR ROYALTY PAYMENT BY THE GOVT. WAS UPTO 8% ON EXPORTS AND 5% ON DOMES TIC SALES YET THE ASSESSEE WAS PAYING ROYALTY AT THE RATE OF ONLY 3% OF SALES. THE TPO HOWEVER DID NOT AGREE WITH THE ABOVE CONTENTIONS OF THE ASS ESSEE. HE OBSERVED THAT NO COMPARABLE ROYALTY AGREEMENT WAS PRODUCED BY THE AS SESSEE TO JUSTIFY THE CUP METHOD ADOPTED BY IT. THE TPO THEREFORE DETERMINED THE ALP AT NIL IN RESPECT OF ROYALTY. THE TPO FURTHER NOTED THAT WHILE THE ROYALTY WAS PA ID FOR THE USE OF TRADEMARK THE ASSESSEE WAS ALSO INCURRING SIGNIFICANT AMP (AD VERTISEMENT MARKETING & PROMOTION) EXPENSES AND THE SAME AMOUNTED TO 8.08% OF THE ASSESSEE'S TOTAL SALES. HE RELYING UPON THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF LG ELECTRONICS MADE AN ADJUSTMENT ON ACCOUNT OF AMP AMOUNTING TO RS.92 LAKHS. WHILE DOING SO THE TPO CATEGORICALLY MENTIO NED THAT NO SEPARATE ADJUSTMENT ON ACCOUNT OF ROYALTY WAS BEING MADE ON LY FOR THE REASON THAT AMP ADJUSTMENT WAS BEING MADE FOR THE DEVELOPMENT O F MARKETING INTANGIBLE NAMELY THE TRADEMARK OWNED BY THE AE AND THE ROYALT Y WAS ALSO FOR THE RIGHT TO USE OF THE SAME TRADEMARK GIVEN TO THE ASSESSEE. THE TPO FURTHER NOTED THAT IN THE EVENT AMP ADJUST MENT WAS DELETED THEN THE ISSUE OF ALP OF ROYALTY WOULD ARISE AND THE SAME SH OULD BE TREATED AS NIL. 4. SO FAR AS THE TRANSFER PRICING ADJUSTMENTS ON AC COUNT OF AMP EXPENDITURE WAS CONCERNED THE LD. DRP WHILE RELYI NG UPON THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR EA RLIER YEAR I.E. A.Y. 2010-11 HELD THAT NO ADJUSTMENTS WERE WARRANTED. SINCE THE AMP ADJUSTMENTS WERE DELETED HENCE THE DRP PROCEEDED TO DECIDE THE ROYA LTY ADJUSTMENT ISSUE. 5. IN RELATION TO TRANSFER PRICING ADJUSTMENTS ON R OYALTY THE DRP OBSERVED THAT IDENTICAL ISSUE WAS INVOLVED IN THE CASE OF TH E ASSESSEE FOR EARLIER YEAR ALSO WHEREIN THE ITAT HAS CATEGORICALLY HELD THAT RBI A PPROVAL DOES NOT IMPLY THAT THE TRANSACTION IS AT ARMS LENGTH IN ACCORDANCE WI TH THE PROVISIONS OF THE IT ACT. THE ITAT HAS FURTHER DIRECTED THE ASSESSEE TO BENCHMARK THE TRANSACTION IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 5 USING COMPARABLE TRANSACTIONS. THE DRP FURTHER OBS ERVED THAT THE TPO HAD ASKED THE ASSESSEE TO PROVIDE DATA OF COMPARABLE TR ANSACTIONS USING ROYALTY STAT DATABASE. IN RESPONSE TO THE SAME THE ASSESS EE VIDE ITS LETTER DATED 02.12.2015 HAD SUBMITTED THAT NO COMPARABLE DATA WA S AVAILABLE IN THE ROYALTY STAT DATABASE. THE DRP THEREFORE OBSERVED THAT T HE ASSESSEE HAD NOT SUBMITTED ANY OTHER COMPARABLE TRANSACTION OR ANY F RESH COMPARABILITY ANALYSIS TO BENCHMARK ITS INTERNATIONAL TRANSACTION RELATING TO ROYALTY. FURTHER THAT THE TPO HAD REFERRED TO PROFIT SPLIT METHOD BEING AN A PPROPRIATE METHOD IN THIS CASE. HOWEVER THE RELEVANT MATERIAL TO APPLY THIS METHOD WAS NEITHER AVAILABLE ON RECORD NOR HAS THE ASSESSEE MADE THE SAME AVAILA BLE BEFORE THE DRP. ON THE CONTRARY THE ASSESSEE SUBMITTED THAT PROFIT SPL IT METHOD ALSO COULD NOT BE APPLIED IN ITS CASE. THE TNMM HAS ALREADY BEEN REJ ECTED BY THE ITAT. CUP & PSM WERE THE ONLY ALTERNATIVES AVAILABLE. REGARD ING CUP METHOD THE ASSESSEE HAD SUBMITTED THAT COMPARABLE DATA OF SIMI LAR TRANSACTION WAS NOT AVAILABLE. THE ASSESSEE HAD ALSO REJECTED PROFIT S PLIT METHOD. THE ASSESSEE THEREFORE HAD REJECTED ALL THE METHODS TO BENCHMARK THE ROYALTY TRANSACTION. THE DRP OBSERVED THAT THE ONLY JUSTIFICATION OF THE ASSESSEE IN ITS REPLY DATED 30.12.2015 THAT AS THE TRADE MARK BELONGED TO THE A E IN THE ABSENCE OF ROYALTY THE AE MAY TERMINATE THE LICENSE DID NOT SERVE THE PURPOSE OF DETERMINATION OF ALP. THE LD. DRP THEREFORE WHIL E RELYING UPON ON THE SPECIAL BENCH DECISION OF THE ITAT IN CASE OF AZTE C SOFTWARE (2007) 109 TTJ 0892 HELD THAT THE ONUS TO MAINTAIN THE RELEVA NT DATA OF COMPARABLE TRANSACTIONS FOR DETERMINING OF ALP AND TO APPLY TH E MOST APPROPRIATE METHOD AND DETERMINE THE ALP WAS ON THE ASSESSEE. FURTHER IT IS THE ASSESSEE WHO HAS TO MAINTAIN DOCUMENTATION OF COMPARABLE TRANSACTION S JUSTIFYING THE FACT THAT THE TRANSACTION IS AT ARM'S LENGTH. IT IS ONLY WHE N THE TPO REJECTS THE BASIC DOCUMENTATION PRODUCED BY THE ASSESSEE THAT THE ONU S SHIFTS TO THE TPO. THE DRP THEREFORE HELD THAT THE ASSESSEE IN THIS CASE HAD FAILED TO DISCHARGE THE INITIAL ONUS OF APPLYING ONE OF THE PRESCRIBED METH ODS WHICH IS THE MOST APPROPRIATE METHOD IN RESPECT OF THE ROYALTY TRANSA CTION. THAT IN THE ABSENCE OF ) IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 6 COMPARABLE DATA/ COMPARABILITY ANALYSIS BEING PRODU CED BY THE ASSESSEE THE ONUS DID NOT SHIFT TO THE TPO WHO WAS NOT EXPECTED TO HAVE THE COMPARABLE TRANSACTIONS TO DETERMINE THE ALP. THE DRP THEREFO RE HELD THAT THE ALP FOR THE TRANSACTION OF ROYALTY SHOULD BE TREATED AS NI L. BEING AGGRIEVED BY THE ABOVE FINDINGS OF THE DRP TH E ASSESSEE HAS COME IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LD. A.R. OF THE ASSESSEE BEFORE US HAS RELIED UPON VARIOUS CASE LAWS TO STR ESS THAT FIPB APPROVAL SHOULD BE CONSIDERED AS CUP FOR BENCHMARKING OF PAY MENT OF ROYALTY. HE IN THIS RESPECT HAS RELIED UPON PAGE NO.341 OF THE PA PER BOOK WHICH IS A LETTER OF THE FIPB DATED 09.03.05 ADDRESSED TO THE ASSESSEE WHEREIN IT HAS BEEN STATED THAT THE ROYALTY PAYMENT UP TO 8% ON EXPORTS IS ON THE AUTOMATIC ROUTE WITHOUT RESTRICTION ON THE DURATION OF THE ROYALTY PAYMENT AS PER PRESS NOTE 2 (2003 SERIES) ISSUED BY DEPARTMENT OF INDUSTRIAL POLICY A ND PROMOTION. THAT THERE IS NO NEED TO OBTAIN FURTHER APPROVAL FROM FIPB FOR EX TENSION OF THE VALIDITY PERIOD OF THE PC APPROVAL. THAT THE FOREIGN COLLABO RATOR MAY BRING INVESTMENT AS PER THEIR REQUIREMENT. HE IN THIS RESPECT HAS ALSO STRONGLY RELIED UPON TH E DECISION OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF SG S INDIA PVT. LTD. ITA NO.1807/13 VIDE ORDER DATED 18.11.15. 7. ON THE OTHER HAND LD. D.R. HAS SUBMITTED THAT AUTOMATIC ROUTE UNDER WHICH FIPB APPROVALS OR RBI APPROVALS ARE GRANTED H AVE BEEN DEVISED FOR THE 'EASE OF DOING BUSINESS'. THESE APPROVALS EMANATE F ROM OTHER LEGISLATION OR POLICY AND ARE NOT IN RELATION TO DETERMINATION OF ARMS LENGTH PRICE. THE PURPOSE OF THE RBI APPROVAL / FIPB APPROVAL IS ENTI RELY DIFFERENT AND CANNOT BE EQUATED WITH THE ARM'S LENGTH PRINCIPLE. IN THIS R ESPECT THE LD. D.R. HAS RELIED UPON THE FOLLOWING DECISIONS: 1. SKOL BREWARIES LTD. (29 TAXMANN.COM 111) (MUMBA I) 2. PEROT SYSTEM TSI (INDIA) LTD. 37 SOT 358 (DEL) IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 7 3. TATA AUTOCOMP SYSTEMS LTD. (21 TAXMANN.COM 48) DT. 30/04/2012 (MUMBAI ITAT) 4. TATA AUTOCOMP SYSTEMS LTD. ITA NO. 1320 OF 2012 DT. 3/2/2015 (BOMBAY HIGH COURT) 5. TATA AUTOCOMP SYSTEMS LTD. ITA NO. 774 & 1508/M/ 2014 DT.18/11/2015 . THE D.R. HAS FURTHER SUBMITTED THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SGS INDIA PVT. LTD. (SUPRA) DOES NOT HOLD BINDING PRECEDENT AS IN THE SAID DECISION THE HONBLE BOMBA Y HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. THE LD. A.R. ON THE OTHER HAND HAS STATED THAT TH E HONBLE BOMBAY HIGH COURT HAS THOROUGHLY EXAMINED THE ISSUE AND AFTER G IVING THOUGHTFUL CONSIDERATION HAS HELD THAT THE BENCHMARKING OF ROY ALTY PAID AT 3% BY THE ASSESSEE TO ARRIVE AT THE ALP WAS MUCH BELOW THE RO YALTY FOR TRADEMARK/BRAND NAME WHICH WAS ALLOWED TO BE PAID BY FULLY OWNED SU BSIDIARY TO ITS OFFSHORE PARENT COMPANY AS PER CLAUSE IV OF THE PRESS NOTE N O.09 (2000 SERIES) ISSUED BY MINISTRY OF COMMERCE GOVERNMENT OF INDIA. BEFO RE DISCUSSING FURTHER WE THINK IT PROPER TO REPRODUCE THE RELEVANT PART O F THE ORDER OF THE HONBLE BOMBAY HIGH COURT HEREUNDER: 2. THE APPELLANT - REVENUE URGES THE FOLLOWING QUE STION OF LAW FOR OUR CONSIDERATION:- '(1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN D ELETING THE ADDITION MADE BY TRANSFER PRICING OFFICER OF RS.1 59 88 100/- ON ACCOUNT OF FEES FOR TECHNICAL SERVICES? 3. THE RESPONDENT-ASSESSEE IS A WHOLLY OWNED 100% I NDIAN SUBSIDIARY OF GENERALE DE SURVILLANCE (SGS) (PARENT COMPANY). T HE PARENT COMPANY IS BASED IN GENEVA SWITZERLAND. THE RESPONDENT-ASSESSEE IS E NGAGED IN INDIA IN PROVIDING CERTIFICATION WITH REGARD TO VARIOUS AGRICULTURAL MINERAL PETROLEUM CONSUMER GOODS AND OTHER SERVICES. 4. FOR THE AFORESAID PURPOSE OF ITS BUSINESS THE R ESPONDENT ASSESSEE USES THE TRADE MARK OF ITS PARENT COMPANY AND IT PAYS ROYALTY FOR THE SAME RANGING BETWEEN 2.5 % TO 4% OF THE REVENUE GEN ERATED. FOR THE PURPOSE OF IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 8 TRANSFER PRICING RESPONDENT-ASSESSEE CONTENDED THA T 3% OF THE REVENUE GENERATED SHOULD BE CONSIDERED AS REASONABLE ROYALTY FOR USE OF TRADE MARK PROVIDED BY ITS PARENT COMPANY. THIS 3% ACCORDING TO THE RESPO NDENT WOULD BE THE APPROPRIATE BENCH-MARK WHILE CONSIDERING THE ARMS LENGTH PRICE (ALP) IN RESPECT OF ITS TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE I.E. PA RENT COMPANY. IN SUPPORT THE RESPONDENT PLACED RELIANCE UPON THE APPROVAL GRANTED BY FOREIGN INVESTMENT PROMOTION BOARD (FIPB) DATED 25 SEPTEMBE R 2000. HOWEVER THETRANSFER PRICING OFFICER (TPO) DID NOT ACCEPT THE SAME AND PLACED RELIANCE UPON THE PRESS NOTE NO.9 (2000 SE RIES) ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRIES GOVERNMENT OF INDIA WHE REIN THE ROYALTY IS ALLOWED AT 1% ON DOMESTIC SALE AND 2% ON EXPORT FOR THE USE OF TRADEMARK/BRAND NAME OF A FOREIGN COLLABORATOR. IN THE CIRCUMSTANCES THE TP O LOWERED THE BENCH MARK TO LESS THAN 3% FOR PURPOSES OF COMPUTING THE ALP. IN TERM S OF THE ABOVE ORDER OF THE TPO THE ASSESSING OFFICER PASSED A FINAL ASSESSMEN T ORDER DATED 24 MARCH 2005. 5. IN APPEAL THE COMMISSIONER OF INCOME TAX (APPEAL S) BY ORDER DATED 20 JANUARY 2006 SUSTAINED THE ORDER DATED 24 MARCH 200 5 PASSED BY THE ASSESSING OFFICER. 6. ON FURTHER APPEAL THE TRIBUNAL ON CONSIDERATION OF ALL THE FACTS CONCLUDED THAT THE ROYALTY BETWEEN THE RANGE OF 5% TO 8% IF T AKEN COULD NOT BE FAULTED AS IT WAS COVERED BY FIPB INSTRUCTIONS. BESIDES THE TRI BUNAL RECORDS THE FACT THAT TRANSFER PRICING STUDY INDENTIFIED THE UNCONTROLLED TRANSACTION OF ROYALTY AT 10% WHEREAS THE RESPONDENT-ASSESSEE MAKES ONLY A PAYMEN T AT 3% TO ITS ASSOCIATED ENTERPRISES. THUS THE TRIBUNAL ACCEPTE D THE CONTENTION OF THE RESPONDENT THAT BENCH MARKING AT 3% TO ARRIVE AT AL P OF PAYMENT MADE TO PARENT COMPANY AS ROYALTY FOR USE OF TRADE MARK. 7. THE REVENUE BEFORE US CONTENDS THAT PRESS NOTE N O.9 (2000 SERIES) ISSUED BY MINISTRY OF COMMERCE GOVERNMENT OF INDIA IN CLA USE III THEREOF PROVIDES AS UNDER:- PAYMENT OF ROYALTY UPTO 2% FOR EXPORTS AND 1% FOR DOMESTIC SALES IS ALLOWED UNDER AUTOMATIC ROUTE ON USE OF TRADEMARKS AND BRAND NAME OF THE FOREIGN COLLABORATOR WITHOUT TECHNOLOGY TRANSFER. THUS IT IS SUBMITTED THAT THE BENCH MARKING OF ROY ALTY PAYABLE BY THE RESPONDENT TO ITS PARENT COMPANY HAS TO BE LOWER TH AN 3% FOR THE PURPOSES OF ARRIVING AT THE ALP. 8. AS AGAINST THE ABOVE THE RESPONDENT-ASSESSEE PO INTED OUT THAT THE PRESS NOTE NO.9 (2000 SERIES) BEING RELIED UPON BY THE RE VENUE EVEN IF APPLIED WOULD INDICATE THAT IN CASE OF WHOLLY OWNED SUBS IDIARIES SUCH AS RESPONDENT A ROYALTY PAYMENT IS ALLOWED FOR USER OF BRAND NAME U PTO 8% ON EXPORT AND 5% ON DOMESTIC SALES. IN SUPPORT RELIANCE IS PLACED ON C LAUSE (IV) OF THE PRESSS NOTE IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 9 WHICH READS THUS:- IV. PAYMENT OF ROYALTY UPTO 8% ON EXPORTS AND 5% O N DOMESTIC SALES BY WHOLLY OWNED SUBSIDIARIES TO OFFSHORE PARENT COM PANIES IS ALLOWED UNDER THE AUTOMATIC ROUTE WITHOUT ANY RESTRICTION ON THE DURATION OF ROYALTY PAYMENTS. 9. IT IS AN UNDISPUTED POSITION BEFORE US THAT THE RESPONDENT-ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF ITS PARENT COMPANY WHICH IS REGISTERED IN SWITZERLAND. THE RESPONDENT PAYS TO ITS PARENT COMPANY ROYALTY F OR USE OF ITS TRADEMARK/BRAND NAME. THEREFORE ADMITTEDLY THE PRESENT CASE IS CO VERED BY CLAUSE IV AND NOT CLAUSE III OF THE PRESS NOTE 9 (2000 SERIES). THE AFORESAID CLAUSE IV OF THE PRESS NOTE (2000 SERIES) ALLOWS PAYMENT OF ROYALTY UPTO 8 % ON EXPORT SALES BY WHOLLY OWNED SUBSIDIARIES TO ITS OFFSHORE PARENT COMPANIES . 10. ON THE LAST OCCASION THAT IS ON 23 SEPTEMBER 20 15 MR. TEJVEER SINGH LEARNED COUNSEL FOR THE REVENUE SOUGHT TIME TO TAKE INSTRUCTIONS ON WHETHER CLAUSE IV AS REPRODUCED HEREINABOVE IS APPLICABLE I N THE CASE OF RESPONDENT- ASSESSEE. TODAY MR. TEJVEER SINGH ON INSTRUCTIONS STATES THAT THE RESPONDENT- ASSESSEE IS COVERED BY CLAUSE IV OF THE PRESS NOTE 9 (2000 SERIES) DATED 8 SEPTEMBER 2000. THEREFORE THE BENCH MARKING OF TH E ROYALTY PAID AT 3% BY THE RESPONDENT TO ARRIVE AT ALP IS MUCH BELOW THE ROYAL TY FOR TRADE MARK/BRAND NAME WHICH IS ALLOWED TO BE PAID BY WHOLLY OWNED SUBSIDI ARY TO ITS OFFSHORE PARENT COMPANY. 11. IN VIEW OF THE ABOVE THE GRIEVANCE OF THE REVE NUE THAT THE TRIBUNAL OUGHT TO HAVE LOWERED THE BENCH MARKING ON APPLICATION OF CLAUSE III OF THE PRESS NOTE 9 (2000 SERIES) DATED 8 SEPTEMBER 2000 DOES NOT SURVI VE. ACCORDINGLY QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUES TION OF LAW. THUS NOT ENTERTAINED. 12. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. 8. WE HAVE PERUSED THE ABOVE DECISION OF THE HONBL E BOMBAY HIGH COURT AS WELL AS THE RELATED DECISION OF THE TRIBUNAL DAT ED 30.01.2013 IN THE SAID CASE OF SGS PVT. LTD. A PERUSAL OF THE ABOVE DECISIONS REVEALS THAT IN THE SAID CASE THE COMPARABLES CONSIDERED BY THE ASSESSEE IN THE T P STUDY WERE REJECTED BY THE TPO AND THE TPO HARPED ON THE PRESS NOTE NO.9 I SSUED BY MINISTRY OF COMMERCE STATING THAT PAYMENT OF 1% ON DOMESTIC SAL E AND 2% ON EXPORT WAS PERMITTED FOR USE OF TRADE MARK AND BRAND NAME ON F OREIGN COLLABORATION. IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 10 THE TRIBUNAL ON CONSIDERATION OF ALL THE FACTS HAD CONCLUDED THAT THE ROYALTY @ 3% COULD NOT BE FAULTED AS IT WA S COVERED BY FIPB INSTRUCTIONS. BESIDES THAT THE TRIBUNAL HAS RECOR DED THE FACT THAT TRANSFER PRICING STUDY INDENTIFIED THE UNCONTROLLED TRANSACT ION OF ROYALTY AT 10% WHEREAS THE RESPONDENT-ASSESSEE HAD MADE ONLY A PAY MENT AT 3% TO ITS ASSOCIATED ENTERPRISES. IT IS THE DEPARTMENT WHO TOOK THE STAND THAT AS PER AS PER CLAUSE III OF THE PRESS NOTE NO.9 (2000 SERIES) ISSUED BY MINISTRY OF COMMERCE GOVERNMENT OF INDIA THE PAYMENT OF ROYALTY UP TO 2% FOR EXPORT S AND 1% FOR DOMESTIC SALES IS ALLOWED UNDER AUTOMATIC ROUTE ON USE OF TRADEMAR KS AND BRAND NAME OF THE FOREIGN COLLABORATOR WITHOUT TECHNOLOGY TRANSFER AN D THEREFORE THE BENCH MARKING OF ROYALTY PAYABLE BY THE ASSESSEE TO ITS P ARENT COMPANY HAS TO BE LOWER THAN 3% FOR THE PURPOSES OF ARRIVING AT THE A LP. HOWEVER WHEN IT WAS POINTED OUT THAT THE CASE OF THE SAID ASSESSEE WAS COVERED UNDER CLAUSE IV OF THE SAID CIRCULAR THE COUNSEL FOR THE REVENUE ON I NSTRUCTIONS OF THE DEPARTMENT STATED THAT THE RESPONDENT-ASSESSEE WAS COVERED BY CLAUSE IV OF THE PRESS NOTE 9 (2000 SERIES) DATED 8 SEPTEMBER 2000 VIDE WHICH R OYALTY ROYALTY UPTO 8% IS ADMISSIBLE ON EXPORT SALES BY WHOLLY OWNED SUBSIDIA RIES TO ITS OFFSHORE PARENT COMPANIES. THE HONBLE BOMBAY HIGH COURT THUS CONS IDERED THE ISSUE AND HELD THAT THE CASE OF THE ASSESSEE WAS COVERED UNDE R THE GOVT. INSTRUCTIONS. HAVING TAKEN A SPECIFIC STAND BEFORE THE HONBLE BO MBAY HIGH COURT RELYING UPON THE FIPB CIRCULAR IN THE CASE OF ANOTHER ASSES SEE NOW THE DEPARTMENT IS ESTOPPED FROM ITS OWN ACT AND CONDUCT TO AGITATE IN THE CASE OF THE PRESENT ASSESSEE THAT THE FIPB CIRCULAR CAN NOT BE APPLIED. THE DEPARTMENT IS SUPPOSED TO ADOPT UNIFORM POLICY IN CASES OF ALL THE ASSESSE S IN RESPECT OF THE SAME ISSUE AND CAN NOT BE ALLOWED TO ADOPT DIFFERENT YARDSTICK S FOR DIFFERENT ASSESSEES ON THE SAME ISSUE. EVEN UNDER THE CIRCUMSTANCES IT CANNOT BE SAID TH AT THE HONBLE BOMBAY HIGH COURT HAS NOT LAID DOWN ANY PROPORTION OF LAW. WE MAY POINT OUT HERE THAT THE SAID DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 11 SGS INDIA PVT. LTD. (SUPRA) HAS ALSO BEEN FOLLOWE D IN THE LATEST DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. DOW AGROSCIENCES INDIA PVT. LTD. ITA NO.1443/M/2011 VI DE ORDER DATED 10.08.2016. THE RELEVANT PART OF THE SAID ORDER IS REPRODUCED AS UNDER: 7.2 NOW IN THE PRESENT YEAR THE CASE OF THE ASSES SEE IS THAT THE PLEA THAT RATE OF ROYALTY APPROVED BY THE CENTRAL GOVERNMENT AS AL SO BY THE RESERVE BANK OF INDIA CONSTITUTES A VALID CUP DATA HAS BEEN AFFIRMED BY T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SGS INDIA PVT. LTD. ITA NO. 1807 OF 2013 DATED 18/11/2015. IN THIS CONTEXT THE LD. REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT BEFORE THE HON'BLE HIGH COURT THE REVENUE HAD RELIED UPON PRE SS NOTE NO.9 (2000 SERIES) ISSUED BY CENTRAL GOVERNMENT FOR ADOPTING THE RATES OF ROYALTY PRESCRIBED THEREIN FOR BENCHMARKING ROYALTY PAYABLE. IN THIS CONTEXT REFERENCE WAS MADE TO PARA 8 OF THE ORDER OF THE HON'BLE HIGH COURT WHEREIN CLAUSE (IV) OF THE PRESS NOTE WAS SPECIFICALLY NOTED WHICH PROVIDED FOR PAYMENT OF R OYALTY UPTO 8% ON EXPORT SALES AND 5% ON DOMESTIC SALES. THE LD. REPRESENTATIVE FO R THE ASSESSEE EXPLAINED THAT THOUGH CLAUSE (IV) OF PRESS NOTE NO.9 (2000 SERIES) CONSIDERED BY THE HON'BLE HIGH COURT RELATED TO PAYMENT OF ROYALTY BY A WHOLLY OWN ED SUBSIDIARY TO ITS OFFSHORE PARENT COMPANY BUT SIMILAR TREATMENT HAS BEEN EXTE NDED EVEN TO OTHER ENTITIES ALSO VIDE A.P.(DIR SERIES) CIRCULAR NO.5 DATED 21/7 /2003 ISSUED BY RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE MUMBAI A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT BEFORE THE HON'BLE HIGH COURT REVENUE STATED THE P RESS NOTE NO.9 (2000 SERIES) DATED 8/9/2000 WAS APPLICABLE TO EXAMINE THE REASON ABLENESS OF THE ROYALTY PAID WHILE COMPUTING THE ARM'S LENGTH PRICE. 7.3 ON THE BASIS OF AFORESAID IT IS CANVASSED THAT THE ROYALTIES PAID BY THE ASSESSEE ARE IN TERMS OF THE APPROVAL GRANTED BY SIA AS ALSO IN TERMS OF CIRCULAR NO.5 DATED 21/7/2003(SUPRA) OF THE RESERVE BANK OF INDIA AND THEREFORE THE ROYALTIES PAID @ 8% ON EXPORT AND 5% ON DOMESTIC SALES ARE TO BE CON SIDERED AT ARM'S LENGTH RATE. 7.4 ALTHOUGH THE LD. DEPARTMENTAL REPRESENTATIVE DI D NOT DISPUTE THE FACTUAL MATRIX BUT HE HAS MERELY RELIED UPON THE ORDER OF THE TPO IN SUPPORT OF THE CASE OF THE REVENUE. 7.5 IN OUR CONSIDERED OPINION FOLLOWING THE JUDGME NT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SGS INDIA LTD.(SUPRA) THE PAY MENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE DOW NETHERLANDS @ 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES IS LIABLE TO BE CONSIDERED AS AT AN AR M'S LENGTH RATE IN VIEW OF THE CIRCULAR NO.5 DATED 21/7/2003(SUPRA). THEREFORE TH E ADDITION MADE BY THE ASSESSING OFFICER ON THIS COUNT IS UNSUSTAINABLE. I N THE ULTIMATE ANALYSIS WE UPHOLD THE ACTION OF THE CIT(A) IN DELETING THE ADDITION ALBEIT ON A DIFFERENT GROUND. 9. FURTHER THE LD. A.R. HAS ALSO BROUGHT OUR ATTEN TION TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA IN DUSTRIES LTD. VS. DY. COMMISSIONER OF INCOME TAX (2006) 283 ITR 402 WHER EIN THE HONBLE IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 12 GUJARAT HIGH COURT HAS HELD THAT WHENEVER AN ORDER OF A SUBORDINATE FORUM IS CARRIED IN APPEAL OPERATIVE PART THEREOF MERGES IN TO THE JUDGMENT ORDER OR DECISION OF THE SUPERIOR COURT AFTER THE CONFIRMATI ON REVERSAL OR MODIFICATION AS THE CASE MAY BE AND THE ORDER OF THE LOWER COUR T OR THE FORUM DOES NOT HAVE ANY INDEPENDENT EXISTENCE THEREAFTER IN RELATION TO THE ISSUE WHICH WAS CARRIED BEFORE THE APPELLATE COURT OR FORUM. THUS WHERE TH E HIGH COURT COMES TO THE CONCLUSION THAT NO SUBSTANTIAL QUESTION OF LAW ARIS ES ON A PARTICULAR ISSUE IT CANNOT BE STATED THAT THE SUBJECT MATTER OF THE CON TROVERSY BETWEEN THE PARTIES HAS NOT BEEN DEALT WITH BY THE HIGH COURT. IN SUCH AN EVENT THE DECISION OF THE TRIBUNAL IS AFFIRMED ON THE ISSUE BROUGHT BEFORE TH E HIGH COURT AND FOR ALL INTENTS AND PURPOSES IT IS THE DECISION OF THE HIGH COURT WHICH IS OPERATIVE AND WHICH IS CAPABLE OF BEING GIVEN EFFECT TO. 10. IN VIEW OF THE ABOVE DISCUSSION IN OUR VIEW T HE ORDER OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF SG S INDIA PVT. LTD. (SUPRA) IS A DECISION ARRIVED AT BY THE HONBLE JURISDICTIO NAL BOMBAY HIGH COURT AFTER CONSIDERATIONS OF THE FACTS AND CIRCUMSTANCES OF TH E CASE AND THE RELEVANT GOVERNMENT NOTIFICATIONS IN THIS REGARD AND THE SAM E HOLDS BINDING PRECEDENT UPON THIS TRIBUNAL. RESPECTFULLY FOLLOWING THE SAI D DECISION OF THE HONBLE BOMBAY HIGH COURT THIS ISSUE IS DECIDED ACCORDINGL Y IN FAVOUR OF THE ASSESSEE. GROUND NO.2 11. THE GROUND NO.2 RELATES TO THE ADJUSTMENTS ON A CCOUNT OF DISALLOWANCE OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND A ND ESIC. THE LD. A.R. AT THE OUTSET HAS STATED THAT THE PAYMENT OF EMPLOYEE S CONTRIBUTION TOWARDS PROVIDENT FUND & ESIC WAS MADE BY THE ASSESSEE BEFO RE DUE DATE OF FILING OF RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. HE THEREFORE HAS STATED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. REPORTED IN (2009) 319 IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 13 ITR 306 (SC) WHEREIN THE HONBLE SUPREME COURT INTER ALIA HAS HELD THAT THE AMENDMENT TO SECTION 43B VIDE FINANCE ACT 2003 W.E .F. 01.04.2004 WHEREBY THE SECOND PROVISO TO SECTION 43B HAS BEEN DELETED AND FURTHER AMENDMENT TO 1 ST PROVISO HAS BEEN MADE WHEREBY IT HAS BEEN PROVID ED THAT NOTHING CONTAINED IN THE SAID SECTION SHALL APPLY IN RELATI ON TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE FOR FURNISHING THE RETURN OF INCOME IS RETROSPECTIVE IN NATURE A ND WOULD OPERATE FROM 01.04.1988. THE HONBLE BOMBAY HIGH COURT HAS IN T HE CASE OF CIT VS. HINDUSTAN ORGANICS CHEMICALS LTD. IN ITA NO.399 OF 2012 VIDE ORDER DATED 11.07.14 HAS HELD THAT THE EMPLOYEES CONTRIBUTION TO PF IS COVERED BY THE SAID DECISION AND THAT THE APPLICABLE DATE WILL BE ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME FOR DEPOSIT OF THE SAID CONTRIBUTION. WE THEREFORE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR THE LI MITED PURPOSE TO VERIFY THAT IF THE CONTRIBUTIONS TOWARDS PROVIDENT FUND & ESIC WER E PAID BY THE ASSESSEE ON OR BEFORE DUE DATE OF FILING OF RETURN OF INCOME AN D IF THE ABOVE CONTENTIONS OF THE ASSESSEE ARE FOUND CORRECT THEN TO ALLOW THE S AME IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ALOM EXTRUSIONS LTD. (SUPRA). 12. IN VIEW OF OUR OBSERVATIONS MADE ABOVE THE APP EAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30.09.2016. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED: 30.09.2016. * KISHORE SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT (A) CONCERNED MUMBAI IT(TP)A NO.1018/M/2016 M/S. A.W. FABER CASTELL (INDIA) PVT. LTD. 14 THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR ITAT MUMBAI.