The case concerning Sony India Pvt Ltd involved multiple assessment years and numerous transfer pricing issues. Most of the issues were decided in Sony’s favour. Certain matters were remanded. The only substantive issue decided against Sony concerned the lower Dividend Distribution Tax rate claim. First, the Tribunal addressed the adjustments made by the tax authorities for alleged advertisement, marketing and promotion (AMP) expenses, considering both the Bright Line Test (BLT) and the so-called ‘intensity adjustment’. The Tribunal held that neither the BLT nor the intensity adjustment is a permissible method under the Income Tax Act for benchmarking AMP expenses. Both the substantive and protective AMP adjustments were deleted. Regarding the royalty payment, the tax authorities had determined the arm’s length price as zero under the CUP method, on the basis that the manufacturing subcontractors, rather than Sony India, should have paid the royalty. However, the Tribunal rejected this approach, relying on its own earlier decision in Sony’s AY 2016-17 case ... Read more

The core issue was whether Beam Global Spirits & Wine’s Advertisement, Marketing, and Promotion expenses for brand promotion constituted an “international transaction” under Section 92B of the Income Tax Act, thereby warranting a transfer pricing adjustment. The tax authorities had applied the Bright Line Test to determine that the AMP expenditure was excessive compared to comparable companies, inferring from this a presumed international transaction with the foreign associated enterprise and making an arm’s length price adjustment. On appeal, the Income Tax Appealante Tribunal overturned the tax authorities adjustment, holding that the existence of an international transaction must be established by tangible evidence—such as an agreement or arrangement—and not by inference from advertisement, marketing, and promotion spending alone. An appeal was then filed by the tax authorities with the High Court. Judgment The High Court dismissed the appeals and upheld the ITAT’s view, reiterating principles from previous rulings, especially Maruti Suzuki and Sony Ericsson. The Court emphasized that: A transfer pricing ... Read more

Sony India Private Limited is a wholly owned subsidiary of Sony Corporation, Japan. During the years under consideration, 2010-11, Sony India was engaged primarily in import and distribution of Sony products in the Indian market. Following an audit, an assessment was issued by the tax authorities where the taxable income of Sony India was adjusted upwards. The tax authorities considered and benchmarked the distribution activities and found that the margin declared by the Sony India was below the average margin of 27,8% determined by applying the TNMM. They further proceeded to benchmark advertising, markeing and promotion (APM) expenses separately by adopting bright line test. An appeal was filed by Sony India Private Limited with the Income Tax Appellate Tribunal. Judgment of the Income Tax Appellate Tribunal The Tribunal ruled mostly in favor of Sony India. Excerpt “24. Next coming to the issue of benchmarking the ALP relating to software division of the assessee, we heard both sides and considered each ... Read more

Samsung India, a subsidiary of Samsung Korea, manufactures and sells mobile phones in India and overseas. Under a technology licence agreement Samsung India paid royalties of 8% to Samsung Korea. Following an audit, the tax authorities determined that Samsung India was a contract manufacturer and therefore the payment of royalties on its sales to group companies was not considered to be at arm’s length. Deductions for the royalty payments were disallowed and an assessment of additional taxable income was issued. Samsung India appealed to the Income Tax Appellate Tribunal, which overturned the assessment, finding that the royalty payments were at arm’s length as Samsung India was not acting as a contract manufacturer but rather as a full-fledged licensed manufacturer. The tax authorities then appealed to the High Court. Judgment The Delhi High Court upheld the ITAT’s decision and ruled in favour of Samsung India. The court found that the royalty payments were at arm’s length as the subsidiary was acting ... Read more

Whirlpool of India Ltd, a subsidiary of the Whirlpool group, distributes Whirlpool products in India and incurs advertising, marketing and promotion (AMP) expenses. An assessment had been issued by the Indian tax authorities for the fiscal year 2016-17 in which the AMP expenses incurred by Whirlpool of India were treated as an international transaction on behalf of other companies in the Whirlpool group, resulting in a significant adjustment to Whirlpool India’s taxable income. Whirlpool filed an appeal which was heard by the Income Tax Appellate Tribunal. Decision The Tribunal set aside the assessment and ruled in favor of Whirlpool. It found that the assessment lacked substantial evidence that AMP’s expenses were incurred for the benefit of other group companies. An application for appeal by the tax authorities to the Supreme Court of India was dismissed in November 2024. Click here for translation ... Read more

Olympus Medical Systems India is a subsidiary of Olympus Corp and engaged in the import, sale and maintenance of medical equipment in India. For FY 2012 and 2013 the company reported losses. An transfer pricing audit was initiated by the tax authorities and later an assessment was issued. Since Olympus India had failed to provide audited financials of its associated enterprises to determine the overall profits of the group, it adopted the Resale Price Method using the Bright Line Test approach. An appeal was then filed by Olympus with the Tax Appellate Tribunal. Olympus India argued that the tax authorities was erroneous in adopting the Residual Profit Split Method in determining the arm’s length price of the AMP expenses and furthermore that the tax authorities could not make an adjustment without having information on the total profits of the group. Judgment of the Tax Appellate Tribunal The tribunal held that Olympus India should not benefit for non-cooperation in providing audited ... Read more

Adidas India Marketing Pvt. Ltd. is engaged in distribution and marketing of a range of Adidas and tailor made branded athletic and lifestyle products. Following an audit for FY 2016-2017, an assessment had been issued by the tax authorities where adjustments had been made to (1) advertising, promotion and marketing activities in Adidas India which was considered to have benefitted related parties in the Adidas group, (2) royalty/license payments to the group which was considered excessive and (3) fees paid by Adidas India to related parties which was considered “fees for technical services” (FTS) subjekt to Indian withholding tax. Following an unfavorable decision on the first complaint, an appeal was filed by Adidas with the Income Tax Appellate Tribunal. Judgment of the ITAT The Tribunal decided predominantly in favor of Adidas. Issues 1 and 2 was restored back to the tax authorities for a new decision in accordance with the directions given by the Tribunal, and issue 3 was set ... Read more

Kellogg India Private Limited is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer under the Kellogg brand. During the year under consideration, Kellogg India had commenced business of distributing Pringles products in the Indian markets. Kellogg India purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer’s cost. These Pringles are later imported by Kellogg India from its AE and distributed in the Indian market. Kellogg India characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India. Singapore AE, being the least complex entity, was selected as the tested party for benchmarking the international transaction of import of finished ... Read more

LG Electronic India has incurred advertisement and AMP expenses aggregating to Rs.6,89,60,79,670/- for the purpose of its business. The tax authorities undertook benchmarking analysis of AMP expenses incurred by LG Electronic India applying bright line test by comparing ratio of AMP expenses to sale of LG Electronic India with that of the comparable companies and holding that any expenditure in excess of the bright line was for promotion of the brand/trade name owned by the AE, which needed to be suitably compensated by the AE. By applying bright line test, the tax authorities compared AMP expenditure incurred by LG Electronic India as percentage of total turnover at 8.01% with average AMP expenditure of 4.93% of comparable companies. Since AMP expenses incurred by LG Electronic India  as percentage of sales was more than similar percentage for comparable companies, LG Electronic India had incurred such AMP expenditure on brand promotion and development of marketing intangibles for the AE. The tax authorities also ... Read more

L’oreal in India is engaged in manufacturing and distribution of cosmetics and beauty products. The tax administration issued an adjustment in respect of trademark royalty which it determined at Nil and technical know-how royalty which it set at 3% instead of 5%. It also rejected the method applied by L’oreal India and adjusted payments for intra-group services. Judgment The assessment was dismissed by the tribunal due to formal errors of the tax authorities Excerpt “Upon careful consideration, we admit the submission of the ld. Counsel of the assessee that proper opportunity was not given to the assessee to make the submissions on the alternatives. However, we also do not agree with the ld. Counsel of the assessee that since on one of the alternative, the DRP’s direction is silent, it can be understood that this issue has been considered by the DRP. Hence, we remit these issues on the alternative suggested by the TPO to the DRP. The DRP shall consider the ... Read more

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 ... Read more

LG India is a wholly owned subsidiary of LG Korea, a multinational manufacturer of electronic products and electrical appliances. LG Korea and LG India entered into a technical assistance and royalty agreement in 2001 where LG India, as a licensed manufacturer, would pay a 1% royalty to LG Korea for the use of various rights for the manufacture and sale of products in India. The agreement also gave LG India a royalty-free use of the LG brand name and trademarks. The tax tribunal in 2013 held that the advertising, marketing and promotion (AMP) expenditure in excess of the arm’s length range helps to promote the brand of the foreign associated enterprise and that the Indian associated enterprise should necessarily be compensated by the foreign one. Then an appeal was filed with the Income Tax Appellate Tribunal ... Read more