Court emphasizes case-by-case approach for transaction aggregation, remits matter for fresh examination by Transfer Pricing Officer

The court held that there is no fixed rule for aggregation or desegregation of transactions and emphasized that each case must be examined based on its facts. It directed a fresh examination of the aggregation issue and did not provide a definitive ruling on the most appropriate method for determining the arm's length price. The appeal was partly allowed, and the matter was remitted for reconsideration by the Transfer Pricing Officer (TPO) after hearing counsel for the parties.

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Issues:
1. Whether desegregation of transactions including royalty and technical services was permissibleRs.
2. Whether aggregation of transactions is essential in determining the arm's length priceRs.
3. Which method is the most appropriate for determining the arm's length price in case of desegregationRs.

Analysis:

Issue 1: Desegregation of transactions
The appellant contended that desegregating the transaction involving royalty and technical support was inappropriate as they were part of a composite understanding. The Revenue argued that desegregation is necessary as per Section 92C of the Income Tax Act. The court noted that there is no fixed rule for aggregation or desegregation. Referring to previous judgments, the court emphasized that each case must be examined based on its facts. The court held that the question of aggregation should be reconsidered in line with the law established in previous cases.

Issue 2: Aggregation of transactions
The court referred to a previous case where the necessity of payment for technical assistance was questioned. The court highlighted that the burden is on the assessee to prove that the international transaction was at arm's length. The court emphasized that the obligation to make payments does not end the inquiry into arm's length pricing. The court stated that if transactions are not at arm's length, adjustments must be made as per the Act, regardless of the allowance under other provisions. The court directed a fresh examination of the aggregation issue based on previous judgments.

Issue 3: Most appropriate method for determining arm's length price
The court did not provide a definitive ruling on the most appropriate method at this stage. It stated that the choice between the CUP method and TNM method should be determined based on the decision regarding aggregation or desegregation. The court clarified that if aggregation is deemed permissible, the findings of the Revenue authorities and Tribunal regarding the TNM method would stand. The appeal was partly allowed, and the matter was remitted for reconsideration by the TPO, who would decide on both aspects after hearing counsel for the parties.

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