2018 (8) TMI 726 - HC - Income Tax

High Court affirms Tribunal's decision on Transfer Pricing Analysis for royalty payments, emphasizing re-evaluation.

The High Court upheld the Tribunal's decision to remand the case for a fresh Transfer Pricing Analysis regarding royalty payments, using the Combined ... Transfer pricing adjustments - Assessee is aggrieved only by the directions of the learned Tribunal for remanding the case back to the TPO/AO for undertaking the Transfer Pricing Analysis with regard to Royalty payments made by the Assessee-Indian company to its Associated Enterprise M/s.Toyota Motors Corporation, Japan and other associated companies. No substantial question of law arises out of the said order with remand directions of the learned Tribunal. The exercise of Transfer Pricing Analysis on the ‘Combined Transaction Approach’ and not on different segment basis, deserves to be undertaken and in our opinion, the learned Tribunal was justified in remanding the case back to the TPO/AO for undertaking such Transfer Pricing Analysis for determining the ALP of the Royalty payments made by the Assessee-Indian company to the Associated Enterprises of Japan. - Decided against the assessee. Issues Involved:1. Remand of Transfer Pricing Analysis for Royalty Payments.2. Combined Transaction Approach vs. Segmented Approach.3. Relevance of Previous Tribunal and Court Decisions.4. Substantial Question of Law.Issue-wise Detailed Analysis:1. Remand of Transfer Pricing Analysis for Royalty Payments:The Assessee is aggrieved by the Tribunal's direction to remand the case back to the Transfer Pricing Officer (TPO)/Assessing Officer (AO) for re-evaluation of the Transfer Pricing Analysis concerning royalty payments made by the Assessee to its Associated Enterprise. The Tribunal found that the TPO had accepted royalty as part of the cost in the manufacturing segment but did not separately consider the Arm's Length Price (ALP) for royalty payments. Therefore, the Tribunal directed the TPO/AO to re-assess whether a separate consideration of 'Royalty' for ALP adjustments is required and to determine the appropriate ALP.2. Combined Transaction Approach vs. Segmented Approach:The Tribunal adopted the 'Combined Transaction Approach' instead of treating the manufacturing and trading segments separately. This decision was based on the Tribunal's earlier ruling for the Assessee's previous assessment year, where it was held that the trading and manufacturing activities were interlinked and should be evaluated together. The Tribunal emphasized that the Act and the Rules support determining ALP by aggregating interlinked transactions rather than evaluating them individually.3. Relevance of Previous Tribunal and Court Decisions:The Assessee argued that remanding the case was unnecessary because the Tribunal's findings for previous assessment years had already been upheld by the High Court. The Assessee cited the High Court's decisions in ITA No.172/2013 and ITA No.525/2014, which upheld the Tribunal's approach of combining the trading and manufacturing segments. Additionally, the Assessee referred to the case of Ganapathi Subraya Bhat vs. Land Tribunal, where the High Court had found a remand to be academic and unnecessary.4. Substantial Question of Law:The High Court concluded that no substantial question of law arose from the Tribunal's order. The Court agreed that the Tribunal was justified in remanding the case to the TPO/AO for a comprehensive Transfer Pricing Analysis using the Combined Transaction Approach. The Court emphasized that the factual determination of ALP and any resulting Transfer Pricing adjustments were not issues before the Court at this stage. The Court also found that the cited judgment of Ganapathi Subraya Bhat was not applicable to the present case due to differing facts and context.Conclusion:The High Court dismissed the Assessee's appeal, affirming the Tribunal's decision to remand the case for a fresh Transfer Pricing Analysis. The Court held that the Tribunal's approach was justified and that the remand was not merely academic. The appeal was dismissed with no costs.