India: Advertisement, Marketing and Promotion expenditure by Associated Enterprises -Corporate Newsletter

February 13, 2018
Finance Bill Graph
ISSUE No. 11
March 13, 2018


India: Advertisement, Marketing and Promotion expenditure by Associated Enterprises

India: Advertisement, Marketing and Promotion


An important concern when foreign companies enter into international transactions with associated enterprises in India has been regarding the permissible limit of advertisement, marketing and promotion expenses (hereinafter referred as ‘AMP expenses’) in India. It remains one of the most complex issues raised by Indian tax authorities.

Creation of marketing intangibles:

In the event of excessive expending on AMP by the Indian counterpart, the tax authorities have made adjustments over the years on the ground that the excessive expenditure done by associated enterprises in India is on behalf of the foreign counterpart (and not for its own benefit) to promote the brand image and develop marketing intangibles for the foreign company in India and therefore, the Indian taxpayer should be adequately compensated on arm’s length basis.[1]

International Transaction:

Before determining what would be the adequate compensation to the Indian counterpart for creation of marketing intangibles, it is necessary to ensure the existence of an international transaction. In this regard, “International transaction” has been defined[2] as a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of:-

  • purchase, sale or lease of
    tangible or intangible property, or
  • provision of services,
  • or lending or borrowing money,
  • or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and
  • shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.

Also, the AMP expenditure done by a licensed manufacturer in India for its business does not constitute an international transaction. In this regard, note that simply because it can be ascertained that the AMP expenditure done is unusual or excessive in nature, it does not establish the existence of an international transaction. However, it becomes possible to compare such expenditure with comparable products in the market once such a transaction is established.

Issue of identification of comparable:

An important issue with regards to ascertaining whether the AMP expenditure has been appropriate or not is regarding the identification of comparable product in the market. A comparable is acceptable, if based upon comparison of conditions a controlled transaction [3] is similar with the conditions in the transactions between independent enterprises. Further, if this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the price or margin. Thus, identification of the potential comparables is the key to the transfer pricing and AMP analysis.[4]

Marketing or Selling Expenses:

In 2015, Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. v. CIT laid down that the marketing or selling expenses like trade discounts, volume discounts, etc. offered to sub-distributors or retailers are also not in the nature and character of brand promotion. Since they are not directly or immediately related to brand building exercise, they cannot be said to have been incurred for publicity or advertisement. And thus, direct marketing and sale related expenses or discounts/ concessions would not form part of the AMP expenses. [5]


If the domestic entity deals with its foreign counterpart which is its Associate Enterprise (under Section 92A of the Income Tax Act) and incurs expenditure for creation of marketing intangibles, adequate compensation should be provided to the Indian entity. However, ascertaining international transaction and identification of comparables remains to be important concerns in to determine what should be the adequate compensation and if any adjustments should be made by transfer pricing officer/authority.


[1]Sony Ericsson Mobile Communications India P. Ltd. v. CIT, (2015) 374 ITR 118 (Del).

[2]Section 92 B of Income Tax Act, 1961.


[3] ITA No. 7714/Mum/2012, ITA Nos. 1119 and 976/Mum/2014, ITA Nos. 518 and 335/Mum/2015.

[4]LG India Electronics Pvt. Ltd. v. ACIT, ITA No.5140/Del/2011.

[5]Sony Ericsson Mobile Communications India P. Ltd. v. CIT, (2015) 374 ITR 118 (Del).


Thiagrarajan Kumararajan Vs Union of India and Ors.

Thiagrarajan Kumararajan Vs Union of India and Ors

Source :

Recently, in the case of Thiagrarajan Kumararajan vs Union of India, the Madras High Court opined that Aadhaar number is necessary to file Income Tax returns. It dismissed a plea by Preethi Mohan refusing to allow filing of Income Tax return without producing Aadhaar number and enrolment ID.

Brief Background –

  • Thiagrarajan Kumararajan (hereinafter referred as ‘the Petitioner’) is practicing as an advocate.
  • The writ petition was filed by the Petitioner under Article 226 of the Constitution of India, praying for a direction to The Income Tax Officer (hereinafter referred to as the ‘Respondent No. 3’) to allow it to file income tax returns for the assessment year 2017-18, either manually or through e-filing facility without insisting for production of an aadhar number/card or enrollment identity as defined under Section 139AA of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’).

Petitioner’s Contentions-

  • The Petitioner submitted that the Hon’ble Supreme Court, in the case of Binoy Viswam Vs. Union of India [1], granted a partial stay of the Proviso under Sub-Section (2) of Section 139AA of the Act.
  • Further, it submitted that the Respondents cannot insist that persons like the Petitioner, who have not enrolled under the Aadhaar Act and who do not wish to enroll themselves, must quote their aadhaar number or their enrollment ID in order to file their income tax returns in accordance with Section 143 (1) of the Act.

Respondents Contentions

  • They contended that the Petitioner had misread the case of Binoy Viswam. In that case, the provisions of Section 139AA of the Act were upheld and the partial stay in that case was only restricted to transactions mentioned in Rule 114B of the Income Tax Rules, hence, the Petitioner cannot be permitted to file ITR without the Aadhar number.

Court’s Decision –

  • Analyzing the judgment in the case of Binoy Viswam, the Court pointed out that ‘on one hand the enrollment under the Aadhar Act is voluntary, however, it is compulsory under the Income Tax Act, which means that as far as the Income Tax Act is concerned, the Aadhar is mandatory, so the people who want to pay income tax need to be registered under the Aadhar Act.’
  • It rejected the contention that enrollment shouldn’t be made mandatory as the two acts serve very different purpose and if for the purpose of the Income Tax Act the government does want to make the Aadhar compulsory, they should be allowed to do so. Also, it is the prerogative of the Parliament to make a particular provision directory in one Statute and mandatory/compulsory in the other and that by itself cannot be a ground to question the competence of the Legislature.
  • After bifurcating Section 139AA of the Act into two parts, the Court observed that PAN is mandatory under Rule 114B, it was also noted that that PAN is a necessity in doing business and revoking a person’s PAN can be seen as taking away their right to business as one can’t pay Income Tax without a PAN.
  • Further, again discussing the judgement in the case of Binoy Viswam, the Court opined that:
    • the provision of making Aadhar compulsory was made to associate Aadhar with the PAN to curb the usage and duplication of the PAN. Hence, these conditions are not violating Articles 14 and 21 of the Constitution.
    • Even then, persons who are not PAN holders, while applying for PAN, they are required to give Aadhaar number. At the same time, as far as existing PAN holders are concerned, since the impugned provisions are yet to be considered on the touchstone of Article 21 of the Constitution a partial stay of the aforesaid proviso is necessary.
    • Those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub-section (2) of Section 139AA of the Act. However, those assessees who are not Aadhaar card holders and do not comply with the provision of Section 139 (2), their PAN cards be not treated as invalid for the time being. It is only to facilitate other transactions which are mentioned in Rule 114B of the Rules.
    • This course of action was taken due to the consequences of not adhering to the Aadhar requirements, which the Court thought wasn’t too severe.
  • According to the Court, the balance of convenience was in the Petitioner’s favor as it was the last day of filing ITR, and if the Petitioner did not file their ITR she may be liable for payment of interest due to late filing. Hence, the Court gave an interim direction to let the Petitioner file the ITR without Aadhar.
  • Therefore, to state that the partial stay granted by the Hon’ble Supreme Court would ensure to the benefit of the Petitioner even for filing income tax returns is a plea, which is not sustainable and is liable to be rejected.

Thus, for all the above reasons, the Court found no grounds to entertain the writ petition. The writ petition was dismissed.


[1] (2017) 396 ITR 66


India: Cabinet approves agreement between India and Philippines on co-operation and mutual assistance in custom matters

The Ministry of Finance

Source :

As per a notification issued by the Press Information Bureau dated November 22nd, 2017, the Indian Government spearheaded by Prime Minister Narendra Modi has agreed to sign and ratify an agreement with the Pilipino government dealing with co-operation and mutual assistance on custom matters between the two nations.

The Agreement will assist in a facilitation of relevant information between both nations to enable prevention of custom related offences. It is also expected to ensure efficient clearance of goods traded between both countries. The Agreement is due to come into force upon the fulfillment of the necessary legal stipulations as required by both the jurisdictions.


The Customs Act, 1962 prohibits the importation of any goods that infringes anyone’s registered intellectual property. As the administrative body that regulates the inflow of goods into the country, it becomes the ideal regulator for counterfeit products. This Agreement would provide a legal framework for sharing of information and intelligence between the Customs authorities of the two countries, which would not only assist in the proper application of Custom Laws, but would also extend to the prevention and investigation of Customs offences that may occur with regards to goods traded between both countries – specially in endeavors to protect Intellectual Property Rights. While the draft agreement has been finalized in concurrence with the custom laws of both the nations, it would assist in India’s customs concerns and requirements with respect to exchange of information and accuracy of customs value declarations, authenticity of certificates of origin, etc.

Legislative Protection:

Importation of counterfeit goods adversely affect producers, consumers and are often excluded from the tax net. Under Section 11 of the Customs Act, the Central Government has the power to prohibit importation or exportation of goods that, inter alia, violate patents, trademarks, copyrights, designs and geographical indications. Currently, Notification No. 51/2010-Cus. (NT) issued under Section 11 of the Customs Act prohibits the import of goods intended for sale or use in India, that are in violation of specified provisions of the above parent IP statutes. The prohibition is subject to following conditions and procedures as specified in the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 (hereinafter referred to as the IP Rules). Thus, these new regulations are most likely to benefit in the enforcement of said IP Rules.

Salient Features of the Enforcement Rules:

In a circular dated October 29, 2007, the Central Board of Excise & Customs under the Ministry of Finance, issued instructions to the relevant customs and excise authorities, for implementation of the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, which now govern the protection of IP with regards to importation of counterfeit goods and the like. Deriving power from Section 11 of the Customs Act, 1951, the rules prevent the importation of any kind of goods that infringe upon the intellectual property of another.

As per the aforementioned legislature, right holders can record their registered trademarks with the Customs authorities. These guidelines also empower and authorize Custom officials to seize goods found to be infringing the trademarks of the registered rights holder at the border itself without obtaining any orders from the Court. These rules further empower the Custom officers to destroy such suspended goods under official supervision or dispose of them outside the normal channels of commerce after it has been determined that the goods detained have infringed the trademarks of the registered right holders as mentioned, provided that all legal proceedings have ended in relation to such determination. These rules also prohibit the re-exportation of the goods infringing trade marks in an unaltered state.

The Enforcement rules aim to implement a centralized, web enabled registration system, along with the establishment of IPR cells in each Custom House. The IPR Cell is given the responsibility of verifying the applications, completing web-enabled registration formalities and making correspondence with the Risk Management Division and other Customs formations, along with handling any instances where there exist the suspicion of a violation of IP Rights. The Legislation further provides for adequate measures for protection of the rightful importer, disposal of confiscated goods if need be and assurance of authority to the Customs in either case of a bona fide or suo moto action in specific circumstances. They further furnish provisions for the filing of a notice by the right holder, registration of said notice by the customs along with a time limit for the right holders to join the proceedings.


India: Trial Court Litigants to Now Receive Case Status Emails

The Supreme Court

Taking a step further in the direction of digitization, the e-Courts programme of the Supreme Court of India added a new facility of sending automated emails to the litigants. As a first step, the trial Courts will now apprise the litigants about the exact status of their case through emails. The email would contain the details of the Court proceeding on the day the case happened and also the next date of hearing. The facility also includes a digital reminder to be sent before the day of hearing. The second step would be extending the facility to all the High Courts.

From now on parties in a suit will have to provide the Courts the email address on which they want to avail this facility. The Plaintiffs will do so while filing a case and Respondents will do it when they appear in the case for the first time. For ongoing cases, the litigants can submit their email addresses to be added to the Court records.

The step is expected to bring competence and transparency into the judicial system. Around 27 million cases are pending in Courts across the country, 2.81 million of these are in trial Courts. As the information would be given to the parties directly, it would also help the lower judiciary fight with the backlog of cases. “It has come to our notice that on many occasions lawyers do not give their clients the correct picture of what happens in the Court and leave them clueless,” Hon’ble Justice Madan B. Lokur, who heads the Supreme Court’s e-courts committee, said.

Conceived by Supreme Court’s e-court committee, the mailing system comes two years after the panel began the National Judicial Data Grid, which is open to public and gives district-wise break up of pending cases. Thus, the committee designed a training program for the trial-court staff through which a group of officials were trained who will further coach their colleagues. These district system administrators and system administrators are experts in both hardware and software.

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