Berry Ratio under TNMM can apply to a stripped-down software reseller with no value addition or intangibles.

Where an assessee resold software subscriptions purchased from an associated enterprise to unrelated customers without value addition, it was treated as a stripped-down reseller rather than a marketing support service provider. On that functional profile, the margin from resale, together with operating expenses reflecting the functions performed and risks assumed, supported use of the Transactional Net Margin Method with Berry Ratio as the profit level indicator. The contrary approach adopted by the lower authorities was considered incorrect, and the transfer pricing adjustment was deleted while the assessee's benchmarking method was accepted.

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Issues: Whether the transfer pricing adjustment on software subscription transactions was sustainable, and whether Transactional Net Margin Method with Berry Ratio as the profit level indicator was the appropriate benchmarking approach for the assessee.

Analysis: The assessee resold software subscriptions purchased from its associated enterprise to unrelated customers without making any value addition to the product. The software itself was the product sold, not a mere medium for marketing services. On the facts, the assessee functioned as a reseller or stripped-down distributor, with income confined to the margin earned on resale and without ownership of the relevant intangibles. In such a functional profile, the operating expenses effectively captured the functions performed and risks assumed, making Berry Ratio an appropriate profit level indicator under the Transactional Net Margin Method. The contrary approach adopted by the lower authorities, treating the assessee as a marketing support service provider and rejecting Berry Ratio, was held to be incorrect.

Conclusion: The transfer pricing adjustment was deleted and the assessee's benchmarking under Transactional Net Margin Method with Berry Ratio as the profit level indicator was accepted.

Ratio Decidendi: Where an assessee acts only as a stripped-down reseller of software subscriptions, without value addition or ownership of intangibles, Berry Ratio may be used as the correct profit level indicator under Transactional Net Margin Method because operating expenses adequately reflect the functions performed and risks assumed.

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