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On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case titled Maruti Suzuki India Limited Vs Commissioner of Income Tax[1], with respect to the transfer pricing (TP) adjustment on account of advertisement, marketing and sales promotion (AMP) expenditure incurred by Maruti Suzuki India Limited (MSIL). Certain TP adjustments were made by the tax authorities by alleging that there has been the creation of marketing intangible for its associated enterprise (AE) Suzuki Motors Corporation (SMC) through the excess AMP expenditure incurred by MSIL vis-à-vis the comparable companies for which it should have received arm’s length compensation from SMC.
It was held by the Hon’ble Delhi High Court (HC) that the alleged excess AMP expenditure incurred by MSIL cant be considered an international transaction in the absence of any agreement or arrangement among the company and its AE. The HC also held that the AMP expenditure incurred by MSIL benefited the enterprise itself in the way of increased market share in India and year-on-year growth of its turnover.
The HC further held that the quantitative approach that the tax authorities had adopted for the determination of the existence of an international transaction on the basis of the excess AMP expenditure wasn’t as per the Indian transfer pricing regulations. The receipt of any benefits by the SMC is only incidental. Further, the extent to which AMP spent on MSIL has given rise to the benefit of the “Suzuki” brand is a complex exercise and can’t be determined in the absence of clear guidelines by the statute.
Table of Contents
The facts of the case titled Maruti Suzuki India Limited Vs Commissioner of Income Tax are discussed below –
The issues raised in the case titled Maruti Suzuki India Limited Vs Commissioner of Income Tax are discussed below –
The observations and ruling of the High Court in the case titled Maruti Suzuki India Limited Vs Commissioner of Income Tax are discussed below –
The ruling in the case titled Maruti Suzuki India Limited Vs. Commissioner of Income Tax is one of the landmark rulings of the HC, which provides relief to the Indian manufacturers from the TP adjustment on account of AMP expenditure incurred by them. Despite the Hon’ble Delhi High Court having jurisdiction just over the state of Delhi, considering the order was detailed, it shall have a persuasive value for other HCs as well.
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