ARAMEX INDIA P.LTD,MUMBAI vs. DCIT RG 9(1)(2),

ORDER

PER N.K. PRADHAN, AM

Sr. No Name of the Company Operating Remarks profits on operating revenues for FY 2011-12 1. Blazeflash Couriers Pvt. Ltd 2.11% Accepted 2. DTDC Intracity Courier Ltd NA 3. Gati Ltd (seg.) 23.84% Accepted 4. Indo Arya Central (seg.) -7.99% Rejected, since the company has extraordinary event of establishing a subsidiary company by the name of M/s. Indo-Arya Global (Malaysia)SDN.BHD. The details are given at Page No. 18 of the annual report of the company.

5. On-Dot Courriers Ltd NA 6. Overtime Express Ltd 0.10% Accepted 7. Patel Integrated Logistics 0.96% Accepted Ltd (seg.) 8. Transport Corporation of 0.01% Rejected, since the company is India Ltd (seg.) an entrepreneur undertaking logistics and supply chain solution provider with a global presence, whose turnover is 1959 Cr which is very high as compared to the turnover of the assessee.

9. Transworld Courriers NA Arithmetic mean 6.75% ITA 1978/MUM/2017/A.Y.2012-13 3 ARAMEX INDIA PRIVATE LIMITED

Thereafter, TPO computed the transfer pricing adjustment for the A.Y. 2012-13 as given below:

Particulars Reference Amount (Rs.) Revenue A 174,76,31,566 Cost of Service + Overheads B 176,31,08,760 Net profit for the year C=(A+B) -1,54,77,193 Arm’s length margin of comparable 6.75% Arm’s length margin D=[6.75% of A] 11,79,65,131 Arm’s length cost of services E=[A-D] 162,96,66,435 Transfer Pricing Adjustment at F=[B-E] 13,34,42,325 entity level Accordingly, the TPO made an adjustment of Rs.13,34,42,325/- on account of international transactions of the assessee. A draft order u/s. 143(3) r.w.s 144C(1) was issued by the AO to the appellant -company on 30.03.2016 proposing certain disallowances on account of transfer pricing adjustment u/s.92CA (3) of the Act. The appellant filed objections before the Dispute Resolution Panel-I (WZ), Mumbai (in short ‘DRP’). The DRP disposed off the assessee’s objections and issued directions u/s.144C(5) on 23.12.2016 to the AO, who passed the impugned order dated 31.01.2017. The assessee is in appeal against the said order passed by the AO.

The ld. counsels filed a copy of working on the above and submit that in case the above is considered, then the entire transfer pricing adjustment of Rs.13,34,42,325/- made by the TPO would stand deleted.

Elaborating further, it is stated by the ld. counsels that the TPO has erroneously stated that the company has established a subsidiary company in F.Y 2011-12. On perusal of the annual report of the company, it is seen that M/s. Indo-Arya Global (Malaysia) SDN.BHD was established as a subsidiary in the previous year. Hence, the same is not an extra-ordinary event in the current year. Our attention was drawn to the following relevant extract of the annual report of the company (page 18) which is as under: “Keeping in view the future prospects of the business in the International Market the Company has established during the last year a Subsidiary Company by the name of INDO ARYA GLOBAL (MALSYSIA) SDN.BHD and the newly owned Subdiary Company has been running its business successfully in Malayasia. “

Without prejudice to the above, it is submitted by the ld. counsels that the appellant has considered the standalone results of the company. Hence, rejection of the company on the basis of establishing a subsidiary is incorrect as the same would not affect the profitability of the company since standalone results are considered. Thereafter, referring to Transport Corporation of India Ltd, the ld. counsels submit that the TPO has stated the company is engaged in providing logistics and supply solutions and hence is not comparable to the assessee. In this connection, it is submitted by them that the appellant has selected the express segment of the company as comparable while benchmarking its ITA 1978/MUM/2017/A.Y.2012-13 5 ARAMEX INDIA PRIVATE LIMITED international express segment. Hence, the TPO has erred in rejecting the company on the basis that it is engaged in activities, different from the appellant.

Further it is argued by the ld. counsels that the TPO has rejected the company on the basis that the turnover of TCI is Rs. 1,959 crore which is substantially higher than the appellant. In this connection, it is submitted that the TPO has erroneously considered the entity level turnover of the company. The turnover of the express segment of the company is Rs. 788 crores (refer page 86 of the annual report). Hence, it is stated that the TPO has erred in rejecting the company on this basis.

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“International express services:- This service entails on time pick-up and delivery of time sensitive documents, samples and small parcels to and from various destinations in the world. Freight forwarding services: This service entails air, land and ocean freight forwarding, consolidation, warehousing, customs clearance and break-bulk services. Domestic distribution services: This service entails pick-up and delivery of shipments from city to city within India.”

6.1 We refer here to the standalone balance sheet of Indo-Arya Central Transport Ltd. for the period 01.04.2011 to 31.03.2012. It is mentioned therein under the head “Foreign Subsidiary” the following: “Keeping in view the future prospects of the business in the international market the company has established during the last year a subsidiary company by the name of INDO-ARYA GLOBAL (MALYASIA) SDN.BHD and the newly owned subsidiary company has been running its business successfully in Malyasia.”

We come across that the ITAT “K” Bench, Mumbai in assessee’s own case for AY 2013-14 [ITA No. 6749/MUM/2017] observed that the TPO had rejected Indo-Arya Central Transport Ltd. on the plea that the company had set up subsidiary in the previous year due to which it is incurring losses. The Tribunal held that: “66. In this regard we observe that the assessee has considered the standalone financial statements of the company for comparability analysis which does not include any subsidiary results. Set-up of subsidiary is recorded as an ‘investment’ in the Balance Sheet of the company and has no effect on the Profit & Loss account/profitability of the company. Hence, rejection of the company on the basis that it established a subsidiary would not be appropriate. Reliance is placed on Mumbai Tribunal decision in the case of Goldstar Jewellery Design Pvt. Ltd vs. ITO [2013] 36 taxmann.com 292 (Mumbai-Trib) wherein it is held that balance sheet transactions have no effect on profitability.”

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A fortiori, we find that the appellant has considered the standalone results of the company and therefore the rejection of the company on the basis of establishing a subsidiary is incorrect as the same would not affect the profitability of the company since standalone results are considered.

6.2 In the case of Transport Corporation of India Ltd, the TPO has rejected it on the basis that the company is an entrepreneur undertaking logistics and supply chain solutions with a turnover of Rs.1,959/- crores which is very high compared to the appellant. On the above, we find that the TPO has erroneously considered the entity level turnover of the company, whereas the turnover of the express segment of the company is Rs.788 crores. We refer hereto page 86 of the annual report. Further, the TPO has held that the above company is engaged in providing logistics and supply solutions and hence not comparable to the appellant. In this regard, we find from the financials that the appellant has selected the express segment of the company as comparable while benchmarking its international express segment. Therefore, the TPO has erred in rejecting the company on the basis that it is engaged in activities different from the appellant. 6.3 In view of the above reasons, we are of the considered view that Indo- Arya and Transport Corporation of India are to be included in the final comparable set. Once they are included, the appellant’s margin at an entity level (as considered by the TPO and AO) is within the +/- range. Accordingly, once either Indo-Arya or Indo-Arya and TCI are reinstated, then the entire transfer pricing adjustment of Rs.13,34,42,325/- would stand deleted. We ITA 1978/MUM/2017/A.Y.2012-13 8 ARAMEX INDIA PRIVATE LIMITED order accordingly. Thus, grounds from 2nd to 19th raised in this appeal are allowed.

the shareholding pattern is distinct from voting power of a Company, has force. Section 79 of the Act specifies that ‘not less than 51% of the voting power were beneficially held by persons who beneficially held shares of the Company carrying not less than 51% of the voting power.’ Since the ABL was having complete control over the APIL, which is the wholly owned subsidiary of ABL, in our view, even though the shareholding of ABL may have reduced to 6% in the year in question, yet by virtue of being the holding Company, owning 100% shares of APIL, the voting power of ABL cannot be said to have been reduced to less than 51%, because together, both the companies had the voting power of 51% which was controlled by ABL.

17A. The purpose of Section 79 of the Act would be that benefit of carry forward and set-off of business losses for previous years of a company should not be misused by any new owner, who may purchase the shares of the Company, only to get the benefit of set-off of business losses of the previous years, which may bear profits in the subsequent years after the new owner takes over the Company. For such purpose, it is provided under the said Section that 51% of the voting power which was beneficially held by a person or persons should continue to be held, then only such benefit could be given to the Company. As we have observed above, though ABL may not have continued to hold 51% shares, but Section 79 speaks of 51% voting power, which ABL continued to have even after transfer of 49% shares to TAFE, as it controlled the voting power of APIL, and together, ABL had 51% voting power. Meaning thereby, the control of the company remained with ABL as the change in shareholding did not result in reduction of its voting power to less than 51%.

have been change in the shareholding in the assessment year 2002-03, yet, there was no change of control of the Company, as the control remained with the ABL as the voting power of ABL, along with its subsidiary Company APIL, remained at 51%. The Supreme Court further observed that the object of enacting Section 79 appears to be to discourage persons claiming a reduction of their tax liability on the profits earned in the Companies which had sustained losses in earlier years. In the present case, the control over the Company, with 51% voting power, remained with ABL and, as such, in our view, the provisions of Section 79 of the Act would not be attracted.

19. Accordingly, we answer the first question in favour of the assessee and against the Revenue, and confirm the finding of the Tribunal in this regard.”

11.1 Then we turn to the case law relied on by the ld. DR. In the case of Yum Restaurants (India) (P.) Ltd. (supra) during the year in question, the assessee's shareholding changed hands from Yum Restaurant Asia Pvt. Ltd. to Yum Asia Franchisees Pvt. Ltd. On being called upon to explain as to why the business loss of the assessee for the earlier years be not considered for set off and carry forward in view of change in shareholding pattern of the company, the assessee stated that the ultimate holding company of the previous parent company and the current parent company is the same and hence, the case cannot be covered u/s 79 of the Act. The Hon’ble Delhi High Court held:- “18. As regards the issue concerning the disallowance of carry forward of accumulated business losses of the past years and set off under Section 79 of the Act, the AO did not accept the contention of Yum India that since the ultimate holding company remained Yum USA, it was the beneficial owner of the shares, notwithstanding that the shares in Yum India were held through a series of intermediary companies. The AO observed that the requirement of Section 79 was that the shares should be beneficially held by the company carrying 51% of voting power at the close of the financial year in which the loss was suffered. The parent company of Yum India on 31st March 2008 was the equitable owner of the shares ITA 1978/MUM/2017/A.Y.2012-13 14 ARAMEX INDIA PRIVATE LIMITED but not as on 31st March 2009. Accordingly, Yum India was not permitted to set off the carry forward business losses incurred till 31st March 2008.

11.2 Another decision cited during the course of hearing was Agile Electric Sub Assembly (P.) Ltd v. DCIT (ITA No. 2497/Mds/2016 for AY 2011-12) by ITA 1978/MUM/2017/A.Y.2012-13 15 ARAMEX INDIA PRIVATE LIMITED ITAT, Chennai, wherein it is held by the Tribunal that Section 79 is applicable in the given facts and circumstances and, accordingly, no part of the brought forward loss of the three subsidiary companies of Agile EDTHPL (holding company of the assessee company), including the assessee-company, shall be carried forward (to the current year) or set off.

11.3 During the year under consideration there was a change in the shareholding as mentioned at para 10 of the assessment order, which is as under:

As on 31st March, 2012 As at March 31, 2011 Name of the No. of shares % shareholding No. of shares % of shareholding shareholder Aramex ----- ------ 23,000,000 95.83% International Limited, Bermuda 43,650,998 99.99% ----- ------ Aramex International Limited, Bermuda 11.4 Thus till FY 2011-12, 95.83% of shareholding of the appellant was held by Aramex International Limited, Bemuda which was 100% directly held by Aramex International LLC (UAE) and 100% indirectly held by Aramex PJSC (UAE). During the year under consideration i.e. FY 2011-12, pursuant to their global restructuring, the shares of the appellant held by Aramex International Limited, Bemuda was transferred to Aramex International Logistics Private Limited, Singapore which was 100% directly held by Aramex International LLC (UAE) and 100% indirectly held by Aramex PJSC. Due to such transfer and on account of further issue of shares by the appellant, Aramex International Logistics Private Limited, Singapore now held 99.99% shareholding of the appellant.

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Having examined the facts of the case, in the light of the case laws relied on by both sides, we find that there was indeed a change of ownership of 95.83% shares of the appellant held by Aramex International Ltd., Bermuda (shareholding as on 31.03.2011) to 99.99% by Aramex International Logistics Pvt. Ltd., Singapore (shareholding as on 31.3.2012), both of which were distinct entities. Although, they might be AEs of Aramex PJSC (UAE), there is nothing to show that there was any agreement or arrangement that the beneficial owner of such shares would be the holding company. Unless the appellant was able to show that notwithstanding shares having been registered in the name of Aramex International Ltd., Bermuda or Aramex International Logistics Pvt. Ltd, Singapore, the beneficial owner was Aramex PJSC (UAE), there could not be a presumption in favour of the assessee. We are of the considered view that a specific finding is to be arrived at to establish that there was any agreement or arrangement that the beneficial owner of such shares would be the holding company i.e. Aramex PJSC (UAE). As the appellant is a company registered in India, one has to examine whether mandatory disclosure has been made as per the relevant provisions of the Companies Act. If the appellant is able to show that notwithstanding shares having been registered in the name of Aramex International Ltd, Bermuda or Aramex International Logistics Pvt. Ltd, Singapore, the beneficial owner is Aramex PJSC(UAE), there would be presumption in favour of the assessee. As the above facts have not been examined by the lower authorities, we restore the matter the file of the AO to make an order afresh, keeping in mind our observations hereinabove and after giving reasonable opportunity of being heard to the appellant. We direct the appellant to file the relevant documents/evidence before the AO. Thus, 20th and 21st grounds of appeal are allowed for statistical purposes.

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The above issue is decided in favour of the appellant by the judgement of the Hon’ble Bombay High Court in CIT v. Ghatge Patil Transports Ltd. [2015] 53 taxmann.com 141 (Bom.), where it is held that both employee’s and employer’s contributions are covered under amendment to section 43B and the decision of the Supreme Court in CIT v. Alome Extrusions Ltd (2009) 319 ITR 306 would apply and hence deduction is allowable.

Following the above decision, we delete the disallowance of Rs.23,850/- made by the AO and allow the 22nd ground of appeal.

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Order pronounced in the open Court on 08.11.2019