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2016 (9) TMI 1304
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.... the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the 'Hon'ble DRP') on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Transfer Pricing Officer 1(1)(1) ('TPO') has: General 1. erred in assessing the total income at Rs. 3,28,42,910 as against income of Rs. 1,35,88,741 computed by the Appellant; Transfer Pricing Grounds Adjustment on account of payment of Royalty of Rs. 1,76,02,005 2. erred in determining the arm's length price for royalty payment as Nil (without undertaking economic analysis) and disallowing the entire royalty payment amounting to Rs. 1,76,02,005; 3 erred in holding that the appellant has failed to discharge the initial onus of applying one of the prescribed method for benchmarking royalty payment; 4 erred in rejecting the transfer pricing analysis undertaken by the appellant by considering the FIPB approval as comparable uncontrolled price ('CUP'); 5. erred in not appreciating the fact that the royalty payments is already benchmarked under TNMM analysis un....
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....ntrolled Price) method. The royalty agreement along with transfer pricing study report was furnished to the AO. It was submitted that the royalty payment of these transactions were at rates approved by various Government authorities. In the course of TP proceedings, the TPO noted that the transaction relating to Royalty had not been benchmarked by the assessee. It was, however, submitted on behalf of the assessee that the royalty was paid in respect of right to use the trademark owned by the AE. The assessee paid royalty @ 3% on the total sale value, excluding AE sales, and sale of nonbranded products. The assessee claimed that the transaction of royalty was at arm's length under CUP method by contending that the same was covered by the approval received from the Government of India, Ministry of Industries, Department of Industrial Policy and Promotions, Secretariat for Industrial Approvals. It was contended that though the approved rate for royalty payment by the Govt. was upto 8% on exports and 5% on domestic sales, yet the assessee was paying royalty at the rate of only 3% of sales. The TPO, however, did not agree with the above contentions of the assessee. He observed th....
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....Method, being an appropriate method in this case. However, the relevant material to apply this method was neither available on record nor has the assessee made the same available before the DRP. On the contrary the assessee submitted that Profit Split Method also could not be applied in its case. The TNMM has already been rejected by the ITAT. CUP & PSM were the only alternatives available. Regarding CUP method, the assessee had submitted that comparable data of similar transaction was not available. The assessee had also rejected Profit Split Method. The assessee therefore had rejected all the methods to benchmark the royalty transaction. The DRP observed that the only justification of the assessee in its reply dated 30.12.2015 that as the trade mark belonged to the AE, in the absence of royalty, the AE may terminate the license, did not serve the purpose of determination of ALP. The Ld. DRP, therefore, while relying upon on the Special Bench decision of the ITAT in case of "Aztec Software" (2007) 109 TTJ 0892, held that the onus to maintain the relevant data of comparable transactions for determining of ALP and to apply the most appropriate method and determine the ALP was on the....
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....ries Ltd., (29 taxmann.com 111) (Mumbai) 2. Perot System TSI (India) Ltd., 37 SOT 358 (Del) 3. Tata Autocomp Systems Ltd., (21 taxmann.com 48) dt. 30/04/2012 (Mumbai ITAT) 4. Tata Autocomp Systems Ltd., ITA No. 1320 of 2012 dt. 3/2/2015 (Bombay High Court) 5. Tata Autocomp Systems Ltd., ITA No. 774 & 1508/M/ 2014 dt.18/11/2015. The D.R. has further submitted that the decision of the Hon'ble Bombay High Court in the case of "SGS India Pvt. Ltd." (supra) does not hold binding precedent as in the said decision the Hon'ble Bombay High Court has dismissed the appeal of the Revenue holding that no substantial question of law arises. The Ld. A.R., on the other hand, has stated that the Hon'ble Bombay High Court has thoroughly examined the issue and after giving thoughtful consideration has held that the benchmarking of royalty paid at 3% by the assessee to arrive at the ALP was much below the royalty for trademark/brand name which was allowed to be paid by fully owned subsidiary to its offshore parent company as per clause IV of the press note No.09 (2000 series) issued by Ministry of Commerce, Government of India. Before discussing further, we think it proper to reprodu....
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....ribunal records the fact that Transfer Pricing study indentified the uncontrolled transaction of royalty at 10%, whereas the respondent-assessee makes only a payment at 3% to its Associated Enterprises. Thus, the Tribunal accepted the contention of the respondent that bench marking at 3% to arrive at ALP of payment made to parent company as Royalty for use of Trade Mark. 7. The Revenue before us contends that Press Note No.9 (2000 series) issued by Ministry of Commerce, Government of India in clause III thereof provides as under:- "Payment of royalty upto 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer". Thus, it is submitted that the bench marking of royalty payable by the respondent to its parent company has to be lower than 3% for the purposes of arriving at the ALP. 8. As against the above, the respondent-assessee pointed out that the Press Note No.9 (2000 series) being relied upon by the Revenue, even if applied would indicate that in case of wholly owned subsidiaries such as respondent, a Royalty payment is allowed for user of brand name upto....
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....and name on foreign collaboration. The Tribunal on consideration of all the facts had concluded that the Royalty @ 3% could not be faulted as it was covered by FIPB instructions. Besides, that the Tribunal has recorded the fact that Transfer Pricing study indentified the uncontrolled transaction of royalty at 10%, whereas the respondent-assessee had made only a payment at 3% to its Associated Enterprises. It is the Department who took the stand that as per as per clause III of the Press Note No.9 (2000 series) issued by Ministry of Commerce, Government of India the payment of royalty up to 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer and therefore the bench marking of royalty payable by the assessee to its parent company has to be lower than 3% for the purposes of arriving at the ALP. However when it was pointed out that the case of the said assessee was covered under clause IV of the said circular, the counsel for the revenue on instructions of the Department, stated that the respondent-assessee was covered by clause IV of the Press Note 9 (2000 series) dated....
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....as been extended even to other entities also vide A.P.(DIR Series) Circular No.5 dated 21/7/2003 issued by Reserve Bank of India, Exchange Control Department, Central Office, Mumbai, a copy of which has been placed on record. The Ld. Representative for the assessee pointed out that before the Hon'ble High Court, Revenue stated the Press Note No.9 (2000 series) dated 8/9/2000 was applicable to examine the reasonableness of the royalty paid while computing the arm's length price. 7.3 On the basis of aforesaid it is canvassed that the royalties paid by the assessee are in terms of the approval granted by SIA as also in terms of Circular No.5 dated 21/7/2003(supra) of the Reserve Bank of India and, therefore, the royalties paid @ 8% on export and 5% on domestic sales are to be considered at arm's length rate. 7.4 Although the Ld. Departmental Representative did not dispute the factual matrix, but he has merely relied upon the order of the TPO in support of the case of the Revenue. 7.5 In our considered opinion, following the judgment of the Hon'ble Bombay High Court in the case of SGS India Ltd.(supra), the payment of royalty by the assessee to its associated e....