India vs Sony Ericsson Mobile Communications India Pvt. Ltd., March 2015, Delhi High Court, ITA No.16/2014

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Sony Ericsson Mobile Communications India Pvt. Ltd. was engaged in distribution and marketing of imported and branded products (mobile phones), manufactured and sold to them by foreign group companies. Intangible rights in the brand-name/ trademark/ trade-name were owned by group parent.

The tax authorities alleged that the Sony Ericsson India had contributed in the development of the brand (legally owned by the parent company) by incurring excessive and non-routine AMP expenses. They contended that such contribution could be considered mere services provided to the legal owner. And since Sony Ericsson India did not receive any compensation for these excessive AMP expenses, an assessment was issued where a compensation for these contributions had been added to the taxable income.

In determining that there had been an additional AMP-transaction the authorities had applied a “bright line test” (a concept originating from the case of US vs. DHL Corporation), where the amount of AMP expenses incurred by Sony Ericsson India had been compared with AMP expenses incurred by the third parties. comparables.

Sony Ericsson brought the tax assessment to the courts.

Judgment of the High Court

The High Court ruled in favor of Sony Ericsson and set aside the assessment of the tax authorities.

According to the Court, AMP expenses/functions had already been compensated in the overall remuneration of Sony Ericsson India.

Para 137 “Aggregation of transactions is desirable and not merely permissible if the nature of transactions taken as a whole is so inter-related that it will be the more reliable means for determining the arm’s length consideration for the controlled transaction.”

 

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