The Tribunal bore on the reliance placed by the taxpayer
on its Advance Pricing Agreement arrangement with Revenue
Authorities for the disputed transaction, and thereby disdained the
TPO's determination of ALP for payment of management fees
ground of absence of concrete evidences
Facts of the Case
AXA Technologies Shared Services Pvt. Ltd. ["the
taxpayer"] is engaged in the business of providing IT
Infrastructure services to AXA group operating companies.
During the assessment year under review, the taxpayer entered into
an international transaction with its associated enterprise
["AE"] for rendering Information technologies enabled
services ["ITES"] and payment of management fees.
For benchmarking aforesaid transactions, the taxpayer applied
Transactional Net Margin Method ("TNMM") on entity wide
During the course of assessment proceedings, the transfer
pricing officer ["TPO"] considered and analyzed both the
aforesaid international transactions of the taxpayer separately.
With respect to payment of management fees, the TPO determined the
arm's length price ["ALP"] at 'Nil'
on the ground that the taxpayer failed to substantiate the economic
benefit derived from such management services.
The aggrieved taxpayer filed an appeal before the Commissioner
of Income tax (Appeals) ["CIT(A)"], which was turned
down. Aggrieved by the same, the taxpayer filed an appeal
before the Income Tax Appellant Tribunal ["the ITAT"/
The ITAT's Adjudication
On Application of TNMM at entity level:
The ITAT, by emphasizing on Indian TP provisions, negated the
benchmarking methodology adopted by the taxpayer of computing
operating margin at entity level in the event when the taxpayer is
earning more than 50% of the revenue from non-AE clients. In
this relation, the Tribunal held that the same has to be examined
by comparing with uncontrolled and unrelated price.
2. In relation to procurement of management
services - Relying on the Advance Pricing Agreement
("APA") entered into by the taxpayer with Revenue
The ITAT held the taxpayer has produced all relevant copies and
record of the agreement incorporating the list of services against
which the management fees charges was paid by the taxpayer to its
AE. Further, the ITAT also opined that the neither the TPO
has produced any findings to demonstrate that the taxpayer has
incurred expenditure towards third parties in respect of the same
services over and above the management fees paid to the AE nor the
expenditure is routed through the Profit & Loss a/c. Therefore,
the TPO was entirely unjustified in arriving at conclusion that no
services have been availed by the taxpayer and computed the ALP of
the same at 'Nil'.
The Tribunal also observed that the lower authorities failed to
appreciate the fact that agreement in relation to its provision of
services, which inter-alia constitute the availing of
management services from its AE, was filed by the taxpayer and was
subsequently accepted by the Revenue Authorities under an Advance
Pricing Agreement ("APA") arrangement with the taxpayer.
In the light of the same, the Tribunal held that the determination
of ALP at 'Nil' by the TPO is contrary to the
stand of Revenue Authorities.
The instant case underlines the fact that the documentary
evidence filed by the taxpayer was not only acknowledged by the
ITAT, but was also approved by the Revenue Authorities under an
APA. Through this ruling, the taxpayers can take a cue of
relying on its arrangement entered into with Revenue Authorities
through APAs or any other alternative dispute resolution mechanism
in relation to its pending litigations for the same disputed
Additionally, it is also pertinent to note that unless the
Revenue Authorities have any concrete evidence for establishing
that any excess expenditure is incurred by the taxpayer in addition
to the management fees already paid to its AE, they cannot jump to
the conclusion that the ALP of the subject transaction to be
AXA Technologies Shared Services Private Limited Vs.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).