Transfer pricing and treaty FTS issues turn on make available, software licence royalty treatment, and no mirror ALP rule.

Transfer pricing adjustments for services to HLPL and SIMPL were examined against objections based on base erosion, revenue neutrality, mirror ALP and treaty protection; the commentary notes that a corresponding adjustment is not required merely because the AE's transaction was accepted elsewhere, while the HLPL benchmarking required fresh review on the fixed-versus-optional services comparison. Software licence receipts were treated as not constituting royalty in light of Supreme Court software-payment principles. Global P&T functional services to SIMPL and other service receipts to HLPL and L&T were analysed under the India-Netherlands treaty and section 9(1)(vii), with the make available test and the overseas-source exclusion leading to non-taxability as fees for technical services.

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Issues: (i) Whether the transfer pricing adjustment in respect of services rendered to HLPL and SIMPL was sustainable, including the objections based on base erosion, mirror ALP and treaty protection; (ii) whether receipts from supply of software licences were taxable as royalty; (iii) whether receipts from Global P&T Functional Services rendered to SIMPL were taxable as fees for technical services; (iv) whether receipts from services rendered to HLPL and L&T were taxable as fees for technical services.

Issue (i): Whether the transfer pricing adjustment in respect of services rendered to HLPL and SIMPL was sustainable, including the objections based on base erosion, mirror ALP and treaty protection.

Analysis: The adjustment was made by applying CUP on the basis of third-party rates for LNG storage and regasification services and manpower services. The objections founded on alleged base erosion, revenue neutrality, and mirror ALP were rejected because the transfer pricing scheme does not require a corresponding adjustment in the hands of the Indian AE merely because the AE's transaction was accepted or because the AE may have a different tax position. The Treaty-based objection was also not accepted. However, the benchmarking exercise in relation to HLPL required fresh examination on the fixed and optional services comparison, and the argument that the amount not received could not be taxed was also kept open for decision in accordance with the pending Special Bench issue.

Conclusion: The transfer pricing adjustment was not deleted in full and the matter relating to HLPL was remanded for fresh consideration. The issue was decided partly in favour of the assessee.

Issue (ii): Whether receipts from supply of software licences were taxable as royalty.

Analysis: The receipts arose from grant of software licences. The controversy stood covered by the Supreme Court decision on software payments, which held that such consideration for use of computer software, in the relevant circumstances, does not amount to royalty.

Conclusion: The receipts were held not to be royalty and the addition was deleted in favour of the assessee.

Issue (iii): Whether receipts from Global P&T Functional Services rendered to SIMPL were taxable as fees for technical services.

Analysis: The services consisted of strategy support, human resources, legal, environmental, safety and IT support. Under the India-Netherlands treaty, taxability depended on the make available condition. On the facts, the services did not transfer technical knowledge, skill, experience, know-how or process in a manner enabling the recipient to perform the services itself in future without further assistance.

Conclusion: The receipts were not taxable as fees for technical services and the addition was deleted in favour of the assessee.

Issue (iv): Whether receipts from services rendered to HLPL and L&T were taxable as fees for technical services.

Analysis: The HLPL services, including CFD modelling, marine biological advice and related reviews, did not satisfy the treaty test of make available and therefore did not fall within fees for technical services. The L&T receipts related to services for overseas projects and were connected with income from a source outside India, bringing them within the statutory exclusion in section 9(1)(vii)(b).

Conclusion: The receipts were held not taxable as fees for technical services and the additions were deleted in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of deletion of specific additions, while the transfer pricing matter was sent back for fresh adjudication on limited aspects, and the Revenue's cross-objection was rejected.

Ratio Decidendi: Under the transfer pricing provisions, acceptance of an AE's transaction or a different tax consequence in another jurisdiction does not create a mirror ALP obligation, and treaty FTS provisions apply only when the make available test is satisfied; software licence payments of the kind considered here are not royalty.

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