Transfer pricing and secondment reimbursements: TNMM upheld, royalty adjustment deleted, and salary reimbursement not treated as technical fees.

TNMM was accepted as the most appropriate transfer pricing method for royalty paid for technical know-how, because the record did not show the unique intangibles or highly integrated joint contributions needed to justify a separate profit split method; the royalty adjustment was deleted. Reimbursement of salary for seconded employees was treated as a salary cost borne by the Indian entity, not fees for technical services, where the personnel worked under its control and the payment contained no income element; no withholding disallowance survived. Plant layout charges and advance tax credit claims were left for verification by the assessing authority.

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Issues: (i) Whether royalty payment for use of technical know-how could be separately benchmarked under the profit split method instead of the transactional net margin method; (ii) Whether reimbursement of salary paid to seconded employees was fees for technical services chargeable to tax and liable for disallowance for non-deduction of tax at source; (iii) Whether plant layout charges were capital in nature and required fresh verification; (iv) Whether credit for advance tax paid required verification.

Issue (i): Whether royalty payment for use of technical know-how could be separately benchmarked under the profit split method instead of the transactional net margin method.

Analysis: The assessee operated a manufacturing setup with integrated international transactions and had benchmarked them on an entity-level TNMM basis. The transfer pricing authority segregated royalty and applied PSM, but the record did not show unique intangibles, highly integrated joint contribution, or other features normally necessary for PSM. The transaction involved use of technology by the assessee in its own manufacturing activity, and the facts were treated as materially identical to those in the sister concern's case where TNMM had been accepted as the proper method.

Conclusion: TNMM was held to be the most appropriate method. The transfer pricing adjustment on royalty was deleted. The issue was decided in favour of the assessee.

Issue (ii): Whether reimbursement of salary paid to seconded employees was fees for technical services chargeable to tax and liable for disallowance for non-deduction of tax at source.

Analysis: The secondment arrangement showed that the Indian company exercised control and supervision over the deputed personnel, fixed their work conditions, and bore the salary cost, while tax had already been deducted on the full salary under the salary provisions. On the facts, the Indian entity was treated as the economic employer and the remittance to the overseas group entity was held to be a reimbursement of salary cost without income element. The payment therefore did not fall within the definition of fees for technical services and did not trigger withholding liability under the non-resident payment provisions.

Conclusion: The reimbursement was not fees for technical services and no disallowance under section 40(a)(i) survived. The issue was decided in favour of the assessee.

Issue (iii): Whether plant layout charges were capital in nature and required fresh verification.

Analysis: The expenditure was claimed as recurring layout charges incurred for rearrangement and efficient utilisation of space, but the record lacked sufficient details to determine whether the outlay was revenue or capital. The matter was therefore considered unsuitable for final adjudication on the existing material and required verification of supporting evidence by the assessing authority.

Conclusion: The issue was remitted for verification and allowed for statistical purposes. The issue was not finally decided on merits.

Issue (iv): Whether credit for advance tax paid required verification.

Analysis: The claim depended on production and verification of supporting evidence regarding tax paid in advance.

Conclusion: The assessing authority was directed to verify the claim and grant credit if admissible. The issue was allowed for statistical purposes.

Final Conclusion: The appeal succeeded on the principal transfer pricing and withholding tax disputes, while the remaining monetary claims were left for verification or statistical disposal.

Ratio Decidendi: Where the seconded personnel are under the control of the Indian entity and the remittance to the foreign group company is only reimbursement of salary cost already subjected to salary tax, the payment is not fees for technical services; and PSM cannot replace TNMM absent unique contributions or highly integrated interdependent transactions.

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