2020 (2) TMI 1704 - AT - Income Tax

Royalty payment deemed arm's length; assessee's appeal allowed based on precedent.

The Tribunal held that the royalty payment on trademark to Cadbury Schweppes Overseas Limited, amounting to 1% of net sales, was at arm's length, and no ... Determination of payment of trademark royalty of Cadbury Schweppes Overseas Limited [CSOL] - TP adjustment on account of payment of trademark royalty to CSOL - HELD THAT:- It is clear from the above decision of the Tribunal [2018 (11) TMI 1762 - ITAT MUMBAI] that the royalty payment of trademark used held within arm’s length and does not call for any adjustment. There being no difference in the factual position in the impugned assessment year, therefore, respectfully following the order of the Tribunal on identical facts in assessee’s own case we hold that royalty payment on trademark to CSOL, 1% of net sale is at arm’s length, hence, no further adjustment is required. The ld DR has fairly conceded that the issue is covered by the decision of the Tribunal in assessee’s own case. Appeal of the assessee is allowed. Issues:1. Determination of payment of trademark royalty to Cadbury Schweppes Overseas Limited.Analysis:The appeal was filed against the order of the ld. CIT(A)-15, Mumbai for the A.Y. 2007-08 regarding the payment of trademark royalty to CSOL. The only issue for determination was the transfer pricing adjustment made by the TPO on the payment of trademark royalty amounting to INR 10,74,54,000. The Tribunal had previously restored the matter back to the TPO, but upon realizing the mistake, recalled the issue for a limited purpose to decide it. In the previous assessment year 2006-07, the Tribunal had already considered and decided a similar issue in favor of the assessee.In the earlier decision, the Tribunal found that the payment of royalty on trademark usage was within arm's length and did not require any adjustment. It was noted that the payment was in line with approvals from RBI and SI A, Government of India. The Tribunal also compared the payment with other group companies globally and found it to be at par or even lesser, thus concluding that the royalty payment on trademark usage was justified and did not necessitate any adjustment. The ld DR acknowledged that the issue was covered by the previous decision in the assessee's own case.Therefore, based on the previous decision and the similarity of facts in the current assessment year, the Tribunal held that the royalty payment on trademark to CSOL, amounting to 1% of net sales, was at arm's length, and no further adjustment was required. Consequently, the appeal of the assessee was allowed, and the order was pronounced in the open court on 11th February 2020.