Maruti-Suzuki's AMP-Spend, Not An International Transaction

Nangia & Co analyses an important Delhi High Court decision in Transfer Pricing. The highlights are

• Delhi HC holds AMP expenses incurred by Maruti Suzuki India (“MSIL” or “Assessee”), not an international transaction u/s 92B; Distinguishes Sony Ericsson HC ruling observing that the ruling was delivered in context of taxpayers who were distributors’ of products manufactured by foreign AE and not ‘manufactures’ themselves (like assessee), and they did not dispute the existence of an international transaction regarding AMP expenses;
• Observes that "the decision in Sony Ericsson expressly negatived the use of the BLT (Bright Line Test) both as forming the base and determining if there is an international transaction and secondly for the purpose of determining the ALP. Once BLT is negatived, there is no basis on which it can be said in the present case that there is an international transaction as a result of the AMP expenses incurred by MSIL";
• Conducting a ‘Step wise analysis of statutory provisions’ of Sections 92B to 92F, concludes that, in the absence of BLT, there is no machinery provision to discern the existence of international transaction on account of AMP expenditure, nor there is a substantive or procedural provision in Chapter X which permits a quantitative AMP TP adjustment;
• Further, notes that Assessee substantially benefited by AMP expenses incurred by it on the products carrying co-branded mark ‘Maruti-Suzuki’ and its AMP expenditure was at 1.87% of its sales as compared to AE's worldwide AMP expenditure of 7.5%, thus belying the possibility of any 'arrangement' or 'understanding' where Assessee was obliged to incur AMP expenditure on AE's behalf;
• Also clarifies that that earlier judgment of HC (delivered in 2010) disposing the writ petition filed by Assessee, cannot preclude Assessee from contesting the finding regarding the existence of an international transaction concerning AMP expenses;
• Further regarding 2010 HC ruling, observes that "a careful reading of the judgment of the Supreme Court reveals that the Supreme Court asked the TPO to proceed with the matter in accordance with law “uninfluenced by the observations/directions given by the judgment in the impugned order dated July 1, 2010.” That virtually nullifies the judgment of the High Court on all aspects."; Thus sets aside ITAT orders pertaining to AYs 2005-06 & 2006-07, in relation to TP adjustments of Rs. 151 crores & Rs. 158 crores respectively on account of AMP expenses : Delhi HC

Read More