Non profit company not a comparable to benchmark international transaction under Transfer Pricing

Non profit company not a comparable for Transfer Pricing. ITAT directed AO to exclude it from the list of comparables to benchmark international transaction.

ABCAUS Case Law Citation:
ABCAUS 3112 (2019) (08) ITAT

The appellant assessee was is a subsidiary of the parent company which operated travel website under several brands. The assessee performed the marketing support services and generally the activities to promote and market the website.

During the relevant Financial the assessee had undertaken two international transactions with its AEs, namely, Provision of Marketing Support Services and reimbursement of expenses.

The determination of arm’s length price (ALP) of the international transaction was referred to the TPO u/s 92CA of the Income Tax Act, 1961 (the Act) and by order, TPO recommended an adjustment u/s 92CA (3) of the Act.

Besides that while making certain disallowances, the Assessing Officer (AO) completed the assessment.

The CIT(A) inter alia brushed aside the contentions of the assessee to include use another entity as comparable instead of the entity used as comparable. Further, risk adjustment was denied to the assessee.

The Tribunal observed that there was no dispute on the nature of the functions performed by the assessee. Functions performed by the assessee included the activities to promote and market the group’s Indian website under the direction and management of parent company identifying new Indian advertisers for the group websites, maintaining relationships with existing advertisers, and marketing and promoting the websites in India, and were determining the market conditions in India and informing UK counterpart of the local terms and pricing levels.

With regard to the entity requested to be excluded from the list of comparable, the contention of the assessee was that the said entity was a registered not-for-profit body of members representing advertisers, advertising agencies, publishers, and broadcast/other media with the objectives to ensure the periodic research made available to its constituents, for measuring effectiveness of media for advertising, research relevant to meet the industry’s increasing need for reliable and accurate information on all media, and timely and economic research for its users.

The Tribunal observed that the entity was completely involved in conducting surveys and in respect of requirement of its members, carried out a media research to understand the choice, test and preferences of people and these activities were actually identical to the activity being conducted by the assessee. On this premise, the CIT(A) reached a conclusion that this company was very much comparable on its FAR analysis with the assessee.

The Tribunal observed that the source of income of the said entity was membership subscription etc. Was more than Rs. 2 crores out of the Rs. 2.64 crores of its income. The Tribunal opined that undoubtedly the entity was a not for profit body.

Non profit company not a comparable

On a careful consideration of the functions performed and other attendant factors, the Tribunal opined that a company registered as a not-for-profit body, lacking profit motive is not a comparable to the assessee and even the area of operation of the said entity was different from the assessee.

Therefore, the Tribunal held that the said entity was not a comparable and have to be excluded. Accordingly, the Tribunal directed the Assessing Officer to exclude this company from the list of comparables to benchmark the international transaction.

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