Arbitration intelligence VIA Transfer Pricing
Hyundai Rotem Company (Appellant) v. ACIT (Respondent)
ITA No.510/Del./2016 dated 22/11/2017
M/s. Hyundai Rotem Company, the taxpayer, paid an amount to DMRC out of the remittance received from the Head office.
But, Transfer Pricing Officer (TPO) had the view that Associated Enterprises (AE) reimbursed the taxpayer as a usual Head Office would support its Project office.
Further, he also held that because the payment arose from taxpayer’s business in India so the transaction should form the part of the margin calculation.
Whether the payment of arbitration award forms part of margin calculation to be added to revenue and cost for bench marking the international transaction?
VIEW OF PANEL
In an order passed by DRP under Rule 13 of the Income-tax Rules, 2009, panel after carefully examining the matter found that the arbitration award was in respect of payment of customs and excise duty exemptions granted by the Government of India.
As per the panel if the liabilities of payment of custom duty and service tax are of project office, then the amount spent on payment of custom duties and service tax and thus also the expense on payment of arbitration award, will be part of cost base of the assesse for purpose of mark-up, if not then it would not be so included.
TPO was directed to follow consistent policy in respect of treatment of these reimbursement and the reimbursement of the arbitration award.
ITAT agreed with the decision of the panel and directed TPO to follow the rule of consistency.
It held that payment on account of arbitration award cannot form part of the cost base for purpose of margin calculation.