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The Tax Publishers GE Money Financial Services (P) Ltd. v. Asstt. CIT [ITA No. 5882/Del/2010, ITA No. 5816/Del/2011 & ITA No. 6282/Del/2012, dt. 2-5-2016] : 2016 TaxPub(DT) 2232 (Del-Trib) Depreciation on leased vehicles Interest on sticky loans Allowance of loss on sale of repossessed assets TP add back on intra group services - management fees *Facts:* Assessee NBFC was part of the GE group of companies was disallowed Depreciation on vehicles given on finance lease. Similarly the interest on sticky loans was taxed and no loss on sale of repossessed vehicles was allowed. In addition the assessee was found to have received management, IT group services from GECF Inc. USA and GE Asia (GECC). These were read as at NIL ALP and the entire management fee was disallowed in TP on following reasons -- i. Assessee could not establish whether such services were needed by the assessee (i.e. Need Test) ii. Whether such services are rendered to the assessee by AE (i.e. Rendition test) iii. Whether the assessee has derived any economic or commercial benefit from these services (i.e. Benefit test) iv. Basis of allocation v. These services are duplicative in nature vi. There is only incidental benefit from these services. DRP upheld the assessment order of assessing officer. On further appeal: Held in favour of the assessee on all the points as under: Relying on ICDS Ltd. v. CIT 350 ITR 527 where in it was held that in a finance lease the owner is the lessor and the beneficial use of the asset need not by the lessor himself thus depreciation was allowable on the leased assets in the hands of the assessee. Delhi High Court in CIT v. Vasisth Chay Vyapar Ltd., 330 ITR 440 has held that section 45Q of the RBI act and the norms of NBFC revenue recognition will override section 145 of the IT act, thus interest on sticky loans is not taxable. Loss on sale of repossessed vehicles in the hands of the lessor is an allowable expenditure thus held in CIT v. Citicorps Maruti Finance Limited in ITA No. 1712& 1714/2010 dated 9-11-2010 affirmed by SC in CC 22330/2011 dated 13-1-2012. Based on submissions of the assessee it was held that the officer himself has held that incidental benefits have flowed from management fees. These being of stewardship nature has not been demonstrated by the TPO. Neither has he taken the onus of computing the ALP but simply held it as NIL. Benefit test is no conclusive reason as it is not for the department to sit in the arm chair of the assessee to decide reasoning of transaction. They were not duplicate services given that those were not provided by the assessee. The basis of allocation and the rationale being on cost plus is as per OECD norms. Assessees documentation has proven that they have rendered these services. Given they being a large conglomerate the requirement and necessity is also clear does not require greater manifestation. Holding the above on this the case was remanded to the TPO for considering the above points and earlier rulings on this topic. The remand being not of routine nature but of requirement to calculate the ALP and the value for the services after giving a proper hearing.

The Tax Publishers

GE Money Financial Services (P) Ltd. v. Asstt. CIT [ITA No. 5882/Del/2010, ITA No. 5816/Del/2011 & ITA No. 6282/Del/2012, dt. 2-5-2016] : 2016 TaxPub(DT) 2232 (Del-Trib)

Depreciation on leased vehicles

Interest on sticky loans

Allowance of loss on sale of repossessed assets

TP add back on intra group services - management fees

Facts:

Assessee NBFC was part of the GE group of companies was disallowed Depreciation on vehicles given on finance lease. Similarly the interest on sticky loans was taxed and no loss on sale of repossessed vehicles was allowed. In addition the assessee was found to have received management, IT group services from GECF Inc. USA and GE Asia (GECC). These were read as at NIL ALP and the entire management fee was disallowed in TP on following reasons --

i. Assessee could not establish whether such services were needed by the assessee (i.e. Need Test)

ii. Whether such services are rendered to the assessee by AE (i.e. Rendition test)

iii. Whether the assessee has derived any economic or commercial benefit from these services (i.e. Benefit test)

iv. Basis of allocation

v. These services are duplicative in nature

vi. There is only incidental benefit from these services.

DRP upheld the assessment order of assessing officer. On further appeal:

Held in favour of the assessee on all the points as under:

Relying on ICDS Ltd. v. CIT 350 ITR 527 where in it was held that in a finance lease the owner is the lessor and the beneficial use of the asset need not by the lessor himself thus depreciation was allowable on the leased assets in the hands of the assessee.

Delhi High Court in CIT v. Vasisth Chay Vyapar Ltd., 330 ITR 440 has held that section 45Q of the RBI act and the norms of NBFC revenue recognition will override section 145 of the IT act, thus interest on sticky loans is not taxable.

Loss on sale of repossessed vehicles in the hands of the lessor is an allowable expenditure thus held in CIT v. Citicorps Maruti Finance Limited in ITA No. 1712& 1714/2010 dated 9-11-2010 affirmed by SC in CC 22330/2011 dated 13-1-2012.

Based on submissions of the assessee it was held that the officer himself has held that incidental benefits have flowed from management fees. These being of stewardship nature has not been demonstrated by the TPO. Neither has he taken the onus of computing the ALP but simply held it as NIL. Benefit test is no conclusive reason as it is not for the department to sit in the arm chair of the assessee to decide reasoning of transaction. They were not duplicate services given that those were not provided by the assessee. The basis of allocation and the rationale being on cost plus is as per OECD norms. Assessees documentation has proven that they have rendered these services. Given they being a large conglomerate the requirement and necessity is also clear does not require greater manifestation. Holding the above on this the case was remanded to the TPO for considering the above points and earlier rulings on this topic. The remand being not of routine nature but of requirement to calculate the ALP and the value for the services after giving a proper hearing.