TPO couldn’t allocate entire ‘market spread’ to assessee’s without FAR of AE at trading location: ITAT

Case Details: UBS AG v. DCIT - [2023] 147 taxmann.com 593 (Mumbai-Trib.)

Judiciary and Counsel Details

• • M. Balaganesh, Accountant Member & Sandeep Singh Karhail, Judicial Member
  • Dinesh Bafna, Ms Chandni Shah & Yogesh Malpani for the Appellant.
  • Ms Vatsalaa Jha for the Respondent.

Facts of the Case

Assessee was a leading wealth manager in Switzerland, Europe, and Asia-Pacific region. It had a branch in India. During year under consideration, Indian branch of assessee had carried out distribution/marketing of fixed income product lines (which were booked in trading locations) in secondary market (trading location) for its associated enterprises, for which it had received marketing commission/fee based on group’s transfer pricing policy.

As part of its function, the Indian branch performed general marketing, client relationship management, trading location and was engaged in executing and booking trades marketed by the Indian branch.

The Transfer Pricing Officer (TPO) noted that in the transfer pricing policy, functions performed by associated enterprises were not mentioned and, accordingly, in the absence of evidence of functions performed, assets used for said functions, and risk taken by associated enterprises, TPO considered entire ‘market spread’ in hands of assessee and proposed a transfer pricing adjustment.

ITAT Held

The Mumbai Tribunal held that since the sales and marketing function and its activities were interlinked with other functions essential for the assessee to generate income on those transactions, and the entire markup earned by the marketer was assigned to them, the TPO could not allot the whole market spread to the Indian branch without understanding the FAR (Functions, Assets, and Risks) of the associated enterprise at the trading location.

List of Cases Referred to

• • Dy. CIT v. UBSAG [IT Appeal No. 5502 (Mum,) of 2016, dated 10-8-2018] (para 8).