BMW India Pvt. Ltd vs. ACIT (ITAT Delhi)

In L. G. Electronics 140 ITD 41 (Del)(SB), the Special Bench laid down guidelines on how to determine whether a transfer pricing adjustment for “Advertisement & market Promotion” (“AMP”) expenses had to be made or not. Subsequently, in BMW (AY 2008-09), a division Bench held that the ratio of L. G. Electronics did not apply to a “full risk distributor”. Another Division Bench in the case of Casio “took umbrage” at the observations made in BMW and made “surprising observations” that “There is no prize for guessing that Special Bench order has more force and binding effect over the Division Bench order on the same issue.” The Bench in the case of Casio and later in Perfetti Van Melle took the view that the principle laid by the Special Bench in L. G. Electronics applied to the case of a “distributor” as well. When the case of BMW for AY 2009-10 came up for hearing, the Bench took the view that there was a conflict between the order passed in the case of BMW (AY 2008-09) and that passed in Casio/ PerfettiVan Melle and the VP was asked to consider whether the matter ought to be referred to a 5 Member Bench. Thereafter, when the matter came up before the present Bench HELD:

The observations of the co-ordinate Bench in Casio India and Perfetti Van Melle are based probably on the line of arguments advanced by the parties, presumably relying on head notes of the publisher in BMW’s case. This may not be the appropriate way to conclude what was decided in the decision dated 16.08.2013 in BMW. We are of the view that it would be more appropriate to refer to the said decision itself and see if the decision of the Special Bench in L. G. Electronics case has been by-passed in BMW’s case. The umbrage expressed in the decision dated 13.12.2013 of the coordinate Bench in Casio India on reflection and consideration would show that it may have been based probably on incorrect pleadings before it based on the head notes as such the observation that there are no prizes for guessing that Special Bench shall prevail probably would not have been made. This aspect has adequately been addressed in the order dated 31.07.2014 in Bose Corporation India Pvt. Ltd. vs. ACIT case where it was held that “needless controversy appears to have arisen apparently due to certain observations made in order dated 13.12.2013 in Casio India Company wherein in para 5 and 6, the co-ordinate Bench appears to be guided by the arguments addressed by the Ld. AR in that case who, relying upon the order in the case of BMW India Pvt. Ltd., advanced arguments apparently on the basis of headnotes of the order in BMW India Pvt. Ltd instead of reading the complete order and submitted that BMW India Pvt. Ltd. be followed in preference to the Special Bench in L.G. Electronics. The observations in para 5 and 6 of the order appears to completely overlook the fact that the material finding in BMW India Pvt. Ltd. actually considered and followed wherever applicable the principles laid down by the Special bench in L.G. Electronics. Hence the surprising observation in para 6 that “there is no prize for guessing that Special Bench order has more force and binding effect over the Division Bench order on the same issue. This contention raised by the Ld. AR, therefore, fails” appears to be the result of the mistaken submissions which could not have been based on reading the entire order and appears to be based only on a reading of the headnotes. The fact that headnotes can at times be misleading is a well known fact as they are only the reporting done for the convenience of the professionals and it is imperative therefore to read the entire order. Be it as it may, we would not be out of place to sound a caution that hasty conclusions based on arguments advanced on the basis of the headnotes in the reporting of the orders may not be advisable and it may lead to misleading conclusions …. The advancing of arguments that a distributor remuneration model is separate and distinct is accepted in L.G. Electronics case also as would be borne out from parameter one of para 17.4 of L.G. Electronics. Accordingly taking cognizance of this decision rendered in BMW India Pvt. Ltd. does not run contrary to the decision of L.G. Electronics case. The fact that in L.G. Electronics case there was no occasion to analyze, consider in detail and consequently adjudicate only on a distributor’s case is self evident since all possible manner of business models were considered together for which purposes acknowledging its humane limitations the Special Bench was constrained and candid to admit the obvious fact that it is not possible to have a straight jacket formula for all eventualities ….. The view taken in BMW India Pvt. Ltd. was that a distributor remuneration model is distinct and peculiar. Thus the view taken was in conformity with the decision of the Special bench and concurring with the view taken, we hold that this view does not override the Special Bench.” Accordingly we hold that there is no conflict between the decision in BMW India Pvt. Ltd. with L.G. Electronics.