MAP settlement cannot determine arm's length price for separate non-covered transactions; independent transfer pricing applies

A MAP settlement under the treaty is a consensual, transaction-specific mechanism confined to the matters actually resolved by the competent authorities. It cannot be extended to determine the arm's length price of distinct non-US transactions not covered by that settlement. Such separate international transactions must be benchmarked independently under the Income-tax Act and the Rules. The use of the MAP framework for the non-MAP transactions was therefore impermissible, and the direction based on that approach could not stand.

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Issues: Whether a transfer pricing framework worked out under the Mutual Agreement Procedure for US transactions could be applied to determine the arm's length price of non-US transactions not covered by that procedure.

Analysis: Mutual Agreement Procedure under the treaty is a consensual mechanism for resolving disputes that give rise to taxation not in accordance with the treaty. It operates through negotiations between competent authorities and is confined to the transactions and issues that are actually the subject of that consensual process. An agreement reached under that mechanism cannot be used to substitute the statutory determination of arm's length price for separate international transactions that were not covered by the agreement. For such non-MAP transactions, the arm's length price must be determined independently under the Income-tax Act and the Rules.

Conclusion: The use of the MAP framework for the non-US transactions was impermissible and the impugned direction could not stand; the issue was decided in favour of the assessee.

Ratio Decidendi: A MAP settlement is transaction-specific and consensual, and cannot be extrapolated to determine arm's length price for distinct transactions outside the scope of that settlement; such transactions must be assessed independently under the transfer pricing provisions.

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