India: Incidental brand building of Associated Enterprise- Corporate Newsletter

May 1, 2018
Income Tax Appellate Tribunal
ISSUE No. 18
May 01, 2018

India: Incidental brand building of Associated Enterprise

India's Income Tax Appellate Tribunal

Source :


The Income Tax Appellate Tribunal, New Delhi (hereinafter referred as ‘ITAT’) delivered a landmark judgment in the case of Honda Siel Power Products Ltd. v. DCIT[1] pronounced on April 17, 2018 wherein the ITAT has added clarity to the position with respect to transfer pricing issues related to advertising, marketing and promotion expenditure (hereinafter referred as ‘AMP expenses’) amongst other issues.

Issues of law raised in the appeal:

The following issues were raised and discussed by the ITAT:

  • Transfer Pricing issues with respect to AMP expenses;
  • Other issues:
    a. disallowance of royalty and technical guidance fees;
    b. disallowance of provision for warranty;

Major grounds for appeal raised with respect to AMP expenses:

  • The AMP expenditure was independently incurred by the Appellant without any understanding/ arrangement or any other influence from the associated enterprise (located in foreign jurisdiction). Thus, such expenses incurred in India do not constitute an international transaction as per Section 92B of the Act in absence of any proved understanding/ arrangement with the associated enterprise.
  • The transfer pricing adjustment permitted under Chapter X of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) is in respect of the difference between the arm’s length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the ‘quantum’/ extent of business expenditure.
  • Opportunity should be provided in terms of Section 92C (3) of the Act.
  • No adjustment on account of AMP expenses is warranted when the assessee is operating independently as a full-fledged manufacturer and full risk distributor.
  • No adjustment on account of excessive AMP expenses is warranted even if AMP expenses incurred are separately benchmarked applying the guidelines prescribed by the Hon’ble Delhi High Court in the case of
    Sony Ericsson Mobile Communication India Pvt. Ltd . [2]
  • Transfer pricing adjustment cannot be made without determining the Arm’s Length Price by applying one of the methods specified in Section 92 C of the Act.
  • The use of AMP intensity adjustment is not mandated under the Indian transfer pricing regulations.

Tribunal’s opinion with respect to AMP expenses:

The Tribunal held that the these issues are decided in favour of the assessee as per the Hon’ble Delhi High Court decision in the assessee’s own case dated December 23, 2015[3] and dated January 14, 2016[4] and therefore, allowed the appeal on the above grounds.


This ITAT order has added some clarity in instances wherein due to AMP expenses incurred there is incidental brand building of the associated enterprise located in the foreign jurisdiction. The Tribunal has accepted the ground of appeal as per earlier High Court decisions. In instances where an Indian enterprise incurs AMP expenses for its own brand building without any understanding/ arrangement or any other influence from the associated enterprise, it cannot be said that there has been an implied international transaction when the Indian enterprise is operating independently as a full-fledged manufacturer and full risk distributor (and not as a contract manufacturer for the associated enterprise). The brand building of the foreign associated enterprise can only be said to be incidental in nature in such cases.


[1]I.T.A .No. 1579/DEL/2017 (A.Y 2012-13) & S. A No. 217/Del/2017 in ITA No. 1579/Del/2017.

[2](2015) 374 ITR 118 (Delhi) Available at

[3] ITA 346/2015 Available at:

[4] ST.APPL. 24/2015. Available at:



India: Double Taxation Agreement signed with Hong Kong

Central Board of Direct Taxes (CBDT), Government of India


With people across the world getting nearer owing to globalization, the international transactions including the business dealings have seen a drastic increase. The trade across international borders are often discouraged by various restrictions in the host country, the most vital being taxation norms. Different countries have different accepted taxation systems, which results in the foreign investor bearing double taxation. The quantum of tax computable depends upon the relationship between the country of domicile of the foreign investor and the host country.

The tax burden faced is usually due to the jurisdiction of tax legislations of both the country of the residence as well as the country of business over the same income accrued to the hands of the foreign investor leading to double taxation. Such tax regimes adversely affect the trading activities being carried out overseas. With a view to promote and encourage international business transactions and provide relief from the ambit of double tax, the countries enter into double taxation avoidance agreement (hereinafter referred to as “DTAA”).

On March 19, 2018, India and Hong Kong Special Administrative Region (HKSAR) of China have signed a DTAA with the objective of facilitating business activities in each other’s territory. India is Hong Kong’s 4th largest export market destination (after China, US, Japan) and Hong Kong is India’s 3rd largest export market (after US, UAE)[5]. India’s exports increased to about 15.8% and imports from Hong Kong increased by 35.9% in 2017[6]. The execution of DTAA is expected to improve transparency in tax matters and will help curb tax evasion and tax avoidance.






India: Regulation of E-wastes from Imported products

The Central Pollution Control Board of India

Source :

With the advent of modernization and advancement of technologies there has been increasing dependence on various electrical products. These include equipment like mobile phones, laptops, computers, televisions, refrigerators, washing machines, etc. The electric/ electronic equipment comprises of toxic and hazardous components which cause environmental pollution. In order to guarantee adequate disposal of wastes generated from end of life electric/ electronic equipment, the Government introduced E-Waste (Management) Rules, 2016 (hereinafter referred to as “Rules”). The said Rules are applicable on producers of e-wastes, collection centres, dismantlers and recyclers.


Increasing globalization has facilitated trade across international borders. More and more entities are involved in business transactions involving import and export of different products. The Government aims to monitor proper disposal of the e-waste accumulated from the imported goods. Obligations are imposed upon the importer of such products to ensure appropriate disposal of the e-wastes.


As per the provisions of the Rules, the importer is required to obtain the Extended Producer Responsibility Authorization (hereinafter referred to as “Authorization”) before importing electric/ electronic products. For the said purpose, an application is required to be made to the Central Pollution Control Board accompanied by documents such as:

  • Extended Producer Responsibility Plan which is inclusive of the strategies for channelization, collection and disposal schemes of the e-wastes generated by the electric/ electronic equipment imported.
  • Awareness Plan which creates awareness amongst the consumer of the importer’s improper disposal of hazardous e-wastes and steps taken to prevent the same.
  • Budgetary allocation which the importer intends to spend to the execution of the disposal of the wastes.
  • Association for suitable disposal of e-wastes indicative of the fulfilment of the obligations by the importer by engagement with recyclers/ dismantlers
  • Compliance to the Reduction of Hazardous Substances provisions.


By the following guidelines issued under the rules, the Government has taken progressive steps to confirm that the wastes generated from discarded electric/electronic products are properly disposed off without resulting in damage to the environment by casting duty upon the importer to ascertain the disposal of e-wastes.



India: Legality of Comparative Advertisements

In modern times, advertisements play an essential role towards promotion of ones’ products and services. However, advertisers tend to make comparison of their products or services with those of the competing brands in order to promote their sales. B Natural used the names of its competitors Tropicana and Real Juice in a recent advertisement very creatively.

Source: Times of India (April 6, 2018)

While engaging in such form of comparative analysis the advertisers must ensure that their advertisements observe fairness in competition. Comparison must not abuse the confidence of the consumer by representing misleading facts which in turn hampers the ability of the consumer to make an informed choice.

Permissible comparison

Although comparative advertisements are not prohibited in India, the Code for Self-Regulation formulated by the Advertising Standards Council of India (hereinafter referred to as “ASCI”) monitors the legality of advertisements and only permits advertisements containing comparisons with other competitors provided:

  • The comparison with the competing products must indicate clear parameters as to what aspects of the advertiser’s product are being compared with what aspects of the competitor’s product.
  • The subject matter of comparison is not chosen in such a way as to confer an artificial advantage upon the advertiser or so as to suggest that a better bargain is offered than is truly the case.
  • The comparisons are factual, accurate and capable of being backed by substantial facts and evidence.
  • The consumer is not likely to be
    misled as a result of the comparison being made, whether about the product advertised or that with which it is compared.
  • It should not unfairlydenigrate attack or discreditother products, advertisers or advertisements directly or by implication.
  • It should neither make unjustifiable use of the name or initials of any other entity, nor take unfair advantage of the goodwill attached to the trademark or symbol of another firm or its product or the goodwill acquired by its advertising campaign.
  • It should not be similar to any other advertiser’s earlier run advertisements in general layout, copy, slogans, visual presentations, music or sound effects, so as to suggest plagiarism.>

Judicial Approach

While determining the legality of comparative advertisements, the Courts in India have laid down the following principles:

  • A tradesman/ advertiser is entitled to declare his goods to be best in the words, even though the declaration is untrue.
  • A tradesman/ advertiser can say that his goods are better than his competitors, even though such statement is untrue.[7]
  • For the purpose of saying that his goods are better than his competitors’, the tradesman/ advertiser can even compare the advantages of his goods over the goods of other.[8]
  • However, the tradesman/ advertiser
    cannot while saying his goods are better than his competitors, say that his competitors’ goods are bad as it may amount to slander/ defamation his competitors and their goods, which is not permissible.[9]
  • If there is no defamation to the goods or to the manufacturer of such goods no action lies, but if there is such defamation an action lies and if an action lies for recovery of damages for defamation, then the Court is also competent to grant an order of injunction restraining the repetition of such defamation.[10]
  • An advertisement is considered to be defaming if it is undervaluing, bringing discredit or dishonor upon the competitor’s product.
  • Although, the tradesman/ advertiser is entitled to boast that his goods are the best in the world and the same does not provide a cause of action to any other trader/ advertiser or competitor until it causes disparagement or defamation to the aggrieved.[11]
  • Glorifying one’s product was permissible provided the rival’s product was not denigrated.
  • In comparative advertising, a certain amount of disparagement is implicit and as long as the advertisement is limited only to puffing, provided that the comparison does not show competitor’s goods in bad light, there can be no actionable claim against the same.
  • Comparative advertising is permitted when the following conditions are met : –
    • goods or services meeting the same needs or intended for the
      same purpose;
    • one or more material, relevant,
      verifiable and representative features;

    • products with the
      same designation of origin.
  • It must be ensured that statements of comparison with the competitors’ products are
    not defamatory or libelous or confusing or misleading.[12]


While advertising or selling products, the advertisers must keep in mind that any comparison or assertions made with any competitors’ products must not violate the legal provisions causing disparagement to other brands.

[7]Reckitt & Colman of India Ltd vs. M.P.Ramachandran & others [1999 PTC (19) 741]

[8]Pepsi Co. vs. Hindustan Coca Cola Ltd. Pepsi Co [2001 (21) PTC 722]

[9]Karamchand Appliances Pvt. Ltd Vs. Sh. Adhikari Brothers and Ors. {2005 (31) PTC 1 (Del)

[10]Dabur India Ltd. vs. Colortek Meghalaya Pvt. Ltd. & Anr., 167 (2010) DLT 278 (DB)

[11]Colgate Palmolive Company & Anr. vs. Hindustan Unilever Ltd., 2014 (57) PTC 47 [Del](DB]

[12]Havells India Ltd & Anr vs Amritanshu Khaitan & Ors DelHC CS(OS) 107/2015

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