17 October, 2017
Transfer Pricing Adjustment – AMP Expenses
The Delhi Income Tax Appellate Tribunal (‘ITAT ’) in the case of Toshiba India Pvt. Ltd. v. DCIT ,7 ruled on the applicability of transfer pricing on advertisement, marketing and promotion expenses (‘AMP ’) for promoting the brand owned by its associated enterprise (‘AE ’), and held that the transaction on account of AMP expenses incurred by Toshiba India Pvt. Ltd (‘Toshiba ’) qualified as an international transaction subject to transfer pricing regulations.
The ITAT relied on the following key facts:
i. The distribution agreement between Toshiba and its AE provided that Toshiba would use its best efforts to promote the ‘Toshiba’ brand name in India.
ii. The AE had also reimbursed a portion of the AMP expenses incurred by Toshiba.
The ITAT observed that the very fact that Toshiba expressly undertook to promote the ‘Toshiba’ brand in India and the AE reimbursed a portion of the AMP expenses clearly demonstrated that Toshiba undertook promotion of the ‘Toshiba’ brand in India on an understanding with the AE , which evidently amounts to an international transaction.
CBDT notifies Final Rules prescribing Method of Valuation
The Finance Act, 2017 amended the Income-tax Act, 1961 to insert two new provisions, namely Section 56(2)(x) and Section 50CA . Section 56(2)(x) provides that where a person receives any property for a consideration less than its fair market value (‘FMV ’), the difference between the consideration received and such FMV shall be taxable in the hands of the recipient.
Section 50CA provides that where a person receives any consideration for transfer of unquoted shares which is less than their FMV , the FMV shall be deemed to be the full value of consideration for computation of capital gains tax liability. The Central Board of Direct Taxes has now notified the final Rules8 providing for the manner of computation of FMV of unquoted shares under the aforesaid provisions.
7 ITA No.1357/Del/ 2017
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
