Loading judgment…
Facts
RICS India Pvt. Ltd., a subsidiary of Royal Institution of Chartered Surveyors (RICS), provides marketing support services and also acted as a collection agent for membership subscription fees and disbursed scholarships on behalf of its Associated Enterprise (AE). The Transfer Pricing Officer (TPO) proposed a transfer pricing adjustment of Rs 49,07,766/-, arguing that these 'pass-through' transactions for subscription collection and scholarship disbursement should have been subjected to a 15% markup as marketing support services.
Held
The Tribunal ruled that the assessee acted merely as a pass-through entity for both subscription collection and scholarship disbursement, without any profit element or risk. Therefore, no transfer pricing adjustment was warranted for these transactions, and the adjustment of Rs 49,07,766/- was deleted. Issues regarding interest under sections 234A, 234B, 234C, and 244A were clarified/remanded to the AO, and penalty proceedings under section 270A were dismissed as premature.
Key Issues
1. Applicability of transfer pricing adjustment on subscription fees collected and scholarships disbursed by the assessee as a pass-through entity for its Associated Enterprise (AE). 2. Correct levy of interest under sections 234A, 234B, 234C, and 244A of the Act. 3. Prematurity of penalty proceedings initiated under section 270A of the Act.
Sections Cited
143(3), 144C(13), 144B, 92CA(1), 92CA(3), 139(1), 234A, 234B, 234C, 244A, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI ANUBHAV SHARMA
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in for AY 2015-16, arises out of the order of the ld Assessing Officer, New Delhi [hereinafter referred to as ‘ld. AO’, in short] dated 28/02/2022 passed u/s 143(3) r.w.s. 144C(13) read with Section 144B of the Act.
Though the assessee has raised several grounds before us, the effective issue to be decided in this appeal is as to whether the subscription fees received by the assessee as a pass through entity and paid to the Associated Enterprise (AE) and scholarships received from AE and paid to third parties by the assessee as a pass through entity could be subjected to transfer pricing adjustment with a markup of 15 percent there on.
We have heard the rival submissions and perused the materials available on record. The assessee is incorporated in India on 14-02-2012 as a wholly owned subsidiary of Royal Institution of Chartered Surveyors (RICS). The assessee is engaged in providing marketing support services to RICS and does local promotion, advertising and marketing of RICS in order to raise the awareness of RICS as a global chartered body for property professionals and its corporate strategy. The assessee has entered into a service agreement with RICS. The functions performed by the assessee in relation to the international transaction pertaining to provision of marketing support services are as follows:-
a) Local promotion and marketing of RICS. b) Networking with businesses and industry. c) Networking with higher education establishments. d) Collection of membership subscription fees locally and remittance to RICS as beneficial owner (acting as a mere collection agent).
The Return of Income for the Assessment Year 2017-18 was filed by the assessee on 30-11-2017 declaring loss of Rs. 1,49,16,557/-. The case of the assessee was selected for scrutiny and the Learned AO made a reference to Transfer Pricing Officer (TPO) under section 92CA(1) of the Act for benchmarking the international transactions of the assessee. The Learned TPO passed an order under section 92CA(3) of the Act on 21-01- 2021.
The assessee is engaged in the business of provision of marketing support services (MSS) and had earned revenue of Rs 10,38,41,652/- during the year under consideration from its AE . This transaction was benchmarked by the assessee using Transactional Net Margin Method (TNMM). The margin derived by the assessee was 15 percent in this segment. Though the learned TPO proposed a transfer pricing adjustment of Rs 62,79,982/- in the first round of proceedings, the same was ultimately brought down to Rs Nil pursuant to rectification order issued by him at subsequent stage. Hence, the assessee cannot have any grievance in this regard. Accordingly, the Ground Nos. 3 to 9 raised by the assessee are hereby dismissed as not pressed and infructuous.
The assessee was in receipt of Rs 3,05,68,416/- towards subscription which was collected by it on behalf of the AE. Similarly the assessee has paid scholarship on behalf of AE to the tune of Rs 21,50,025/-. These two transactions were reported by the assessee as international transactions in its transfer pricing study report (TPSR). The assessee submitted that in respect of subscription amount collected, the same is related to membership fee paid for becoming a member or to continue as a member of RICS. This fee was collected by the assessee company from the members and then remitted back to the foreign AE. In respect of scholarship fee paid on behalf of AE, it was submitted that Assessee Company paid / disbursed scholarships to the students enrolled in RICS SBE, which was subsequently recovered from its AE. The assessee also submitted that one of the functions performed by it to its AE is collection of subscription fee paid by the members in India and payment of scholarships to students on behalf of AE, among others. The learned TPO however observed that collection of subscription fee and disbursement of scholarship is nothing but the marketing support services itself on which the SSE ought to have charged with markup of 15 percent on the services. Since the same was not done by the assessee, the learned TPO proposed an adjustment of Rs 49,07,766/- which was adopted by the learned AO in the final determination of total income of the assessee.
The learned AR drew our attention to page 3 of the synopsis explaining the flow of transactions carried out by the assessee on behalf of its AE in pictorial form which is reproduced here under:-
From the above, it is very clear that assessee had collected the subscription from the members on behalf of the AE and passed on the very same amount to the AE without having any profit element. Hence the assessee had merely acted as a pass through entity. Similarly, the assessee had disbursed the scholarships to students enrolled in RICS programme on behalf of the AE. This scholarship which has been paid by the assessee had been duly reimbursed by the AE to the assessee. Hence there is no risk involved by the assessee in this transaction. There is no need to employ any assets for carrying out this transaction on behalf of the AE by the assessee. Hence there is no need for the assessee to even charge a markup on rendition of these services on behalf of the AE. Accordingly, the transfer pricing adjustment made in the sum of Rs 49,07,766/- qua these two transactions deserve to be deleted. Accordingly, the Ground Nos. 10 to 12 raised by the assessee are hereby allowed.
The Ground No. 13 raised by the assessee is challenging the levy of interest under section 234A of the Act. The learned AO is directed to examine whether the return was filed within the due date prescribed Page | 4 under section 139(1) of the Act or extended due date prescribed by the CBDT for the year under consideration. If the return is filed beyond the said due date /extended due date, then interest under section 234A of the Act is leviable. The chargeability of interest under section 234 B of the Act is consequential in nature. In respect of interest charged under section 234C of the Act, we would like to state that the law is very clear that interest under section 234C of the Act should be charged only on the returned income and not on the assessed income. With regard to claim of interest under section 244A of the Act, the same is to be done by the learned AO in accordance with law. Accordingly, the Ground No. 13 is disposed of in the above mentioned manner.
The Ground No. 14 raised by the assessee is challenging the initiation of penalty proceedings under section 270 A of the Act which would be premature for adjudication at this stage and hence dismissed.
In the result, the appeal of the assessee is partly allowed.