×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
07-06-2019, Synergy Maritime, Section 44C, 92C(3), 92C, Tribunal Chennai
This appeal by the assessee is arising out of the directions issued by the learned Dispute Resolution Panel-2, Bengaluru dated 26.09.2017 and the assessment order passed by the learned Deputy Commissioner of Income Tax, Chennai dated 25.10.2017 passed U/s. 143(3) r.w.s. 92CA(4) r.w.s. 144C(5) of the Act for the assessment year 2013-14.
1. The Ground Nos.1 & 2 raised by the assessee are general in nature and does not require any specific adjudication.
2. Determination of Arm’s Length Price (ALP) for Ship / Vessel Management Services and Recruitment Services
The brief facts of this issue are that the assessee is subsidiary of Synergy Marine Private Limited, Singapore (Synergy Singapore) and is engaged in provision of vessel management and ship consultancy services. Headquartered in Singapore, the Synergy Group is engaged in provision of a comprehensive range of ship consultancy services which consists of crew management, technical management, risk management, marine insurance, ship broking etc. The assessee has reported international transaction with Synergy Singapore, the Associated Enterpr se (in short ‘AE’) during the year and the same was referred to the Learned Transfer Pricing Officer (in short ‘ld TPO’) u/s 92CA of the Act for determination of ALP. The assessee submitted transfer pricing study with FAR analysis and information required u/s 92D(1) of the Act before the ld TPO.
3.1 The assessee submitted before the ld TPO that Synergy Singapore, the AE entered into agreements with ship owners for rendering vessel management services. It was submitted that the assessee acted as a captive service provider to its AE and also provided vessel management services to third parties as per the requirement of the AE based on agreement entered between the assessee and AE. The assessee submitted that the AE had outsourced similar services to third parties apart from the assessee and hence the assessee had adopted internal Comparable Uncontrolled Price (CUP) Method as the Most Appropriate Method (MAM) for benchmarking the international transaction with AE.The assessee submitted agreements entered between AE and assessee and also agreements entered between AE and Filharmony Shipmanagement Limited Inc, the third party, providing vessel management and recruitment services to the AE, to prove that similar services as that of assessee were provided by the third party to AE, and such third party was compensated at USD 4500 per vessel per
month as against USD 6800 per vessel per month received as compensation by the assessee from AE. Hence it was the submission of assessee that the transaction with its AE was at ALP.
3.2 The ld TPO rejected internal CUP method and adopted Profit Split Method (PSM) as the MAM for determination of the Arm’s Length Price (ALP) in respect of the international transaction with AE. In this regard, the summary of observations of the ld TPO are as under:-
(i) There was significant difference in the terms and conditions of the agreement entered by the assessee with AE and agreement entered by the third party with the AE. Further in the agreement, the assessee is characterized as ‘Agent’ whe eas the third party is characterized as ‘Manager’.
(ii) The similarity of services should be of very high order for adopting CUP method. The assessee could not demonstrate that services provided by the third party and assessee were identical with suitable evidences when there are difference in the terms and conditions and functions performed as per the agreement.
(iii) Huge difference in compensation received from the AE by the assessee and the third party (i.e USD 2200 (9000-6800) per vessel per month as referred supra), further substantiates the additional services performed by the assessee and so comparable selected by assessee is not perfect CUP.
(iv) Entire work related to vessel management is performed by the assessee and the work carried out by AE are mere headquarter functions of planning, laisoning and supervision.