TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1280
X X X X Extracts X X X X
X X X X Extracts X X X X
....0,5311- declared by the assessee. 3. On the facts and circumstances of the case, the learned DRP has erred, both on facts and in law, in confirming addition to the extent of Rs. 24,78,07,5251- as difference in arm's length price claimed by the Assessee. 4(i) On the facts and circumstances of the case, the learned DRP has erred, both on facts and in law, in confirming adjustment on account of arm's length price of Rs. 24,78,07,525 on account of royalty paid by the assessee. (ii) On the facts and circumstances of the case, the DRP has erred, both on facts and in law in ignoring the contention of the assessee that it has been able to get tangible benefit in the form of manufacturing motor cycles by making this royalty payment. (iii) On the facts and circumstances of the case, the DRP has erred, both on facts and in law in rejecting the contention of the assessee that royalty payment is not related to and has no relevance with the profit or loss the assessee may make by use of the said technology. (iv) On the facts and circumstances of the case, the DRP has erred in accepting the TPO's contention that the assessee is making three separate payments for the same set....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUNDS NO.1 & 2 6. Grounds No.1 & 2 are general in nature more specifically elaborated in the subsequent grounds, need no adjudication. GROUNDS NO.3 TO 6 7. The ld. TPO, by applying the CUP method, determined the ALP of international transaction qua payment of royalty came to the conclusion that the taxpayer has not proved any real tangible economic benefit that has been passed to him by the technology received from AE nor it has provided comparable cases where independent parties are making payment for royalty under similar circumstances and has also declined to follow decision rendered by the Hon'ble High Court in CIT vs. EKL Appliances Ltd. - (2012) 345 ITR 241 and proceeded to propose the ALP at Rs. 24,78,07,535/-. 8. Ld. AR for the taxpayer contended that the issue in controversy has been covered by the decision of the coordinate Bench of the Tribunal in taxpayer's own case for AY 2009-10 vide ITA No.1720/Del/2014 order dated 27.04.2017. However, on the other ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to sub-contract the same; - To procure local parts and import imported parts; - To manufacture motorcycles at its factory premises; - To sell, distribute, market and service motorcycles and parts in India, Nepal and Bhutan; - To export motorcycles and part; and - Right to use "Yamaha" Trademark for the purpose of doing above-stated activities, and permit the Company's dealers to use the Yamaha trademark in the course of marketing activities in India, Nepal & Bhutan. - Technical information here means the technical information contained in below documents, which shall be provided by YMC to the Company:- - Master part lists with respect to motorcycles; - Drawings with respect to motorcycles and parts thereof; - Yamaha Design Standards and Yamaha Quality Standards specified in the Drawings; - Inspection standards for completed motorcycles and parts thereof; - Process standards, which specify and give technical explanation of the basic manufacturing methods and processes required for manufacture of locally manufactured parts for the motorcycles. 2. When was the technology developed - The technology is developed from time to time depending on the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nefit derived by the Assessee from use of technology provided by YMC is very well evidenced by the fact that the Assessee is able to manufacture motorcycles by using the said technology. Without the technology provided by YMC, the Assessee cannot manufacture motorcycles. Similarly, the grant of license for using the trademarks enables the Assessee to sell the products manufactured by the Assessee. Without a known trademark, the Assessee will not be able to sell its products. 12. As mentioned above, the grant of technology and license for use of trademarks enable the Assessee to manufacture, as well as, sell its products. In view of the same, it may be appreciated that whatever sales are made by the Company can be attributed to technology licensed by YMC to the Assessee. It is not possible to quantify the benefit derived by the Assessee by payment of royalty to YMC as required by you in view of the fact that the Assessee has incurred substantial losses. 13. YMC has been charging the royalty from its other AEs at similar rates. In this respect, we invite your kind attention towards the Transfer Pricing Analysis Report. YMC has entered into a similar technical collabora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cess and the quality of the product will be one of the factors that will play a decisive role in the case of the assessee, that factor is missing and the assessee was not supposed to pay the royalty to AE, we are of the view that this reasoning of the TPO is also unsustainable. If one entity uses the brand name of another entity it is supposed to make payment for the use of the brand name to the other entity. The brand name per se may not be enough to ensure commercial success. It is also a fact that assessee company has used the trademark "Yamaha" and that trademark belongs to Yamaha Motor Co. Ltd., Japan. If that be so, then assessee company is required to pay for use of the trademark "Yamaha". The TPO was required to make out a comparative analysis so as to determine the arm's length price in the facts and circumstances, taking into consideration the three factors i.e. function performed, assets deployed and risks assumed. In the present case, from the facts, it is evident that the royalty has been paid for the intangible license which has been granted by the AE to the assessee company and accordingly the assessee is required to make payment of the same. 21. This issue is squ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lier, the TPO, in fact, further held that the assessee should have been able to show the level of increase in profit post the said transactions. 21. We are unable to agree with this finding. The answer to the issue whether a transaction is at an arm's length price or not is not dependent on whether the transaction results in an increase in the assessee's profit. This would be contrary to the established manner in which business is conducted by people and by enterprises. Business decisions are at times good and profitable and at times bad and unprofitable. Business decisions may and, in fact, often do result in a loss. The question whether the decision was commercially sound or not is not relevant. The only question is whether the transaction was entered into bona fide or not or whether it was sham and only for the purpose of diverting the profits. 22. The TPO observed that regular increase in profits is a normal incidence in business. This is entirely incorrect. All businesses are not profitable. All decisions do not enhance profitability. Losses are also an incidence of business. Many are the failed business ventures of people and enterprises. 23. Enterprises, businessmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efulness of its products and services enhances the value thereof and consequently furthers its own commercial interests. Merely because an assessee profits by the use of the goods supplied or the services rendered, it does not follow that the same were sold or supplied at an arm's length price. Conversely, merely because an assessee does not profit from the use of the goods or services it does not follow that they were not sold at an arm's length price. 26. A view to the contrary would cause considerable confusion and lead to arbitrary, if not illogical, results. A view to the contrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm's length price. A further question that may arise is whether the arm's length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee's claim, it is not determinative of the same." 23. As regards comparative analysis, on going through the record we note that assessee has benchmarked its transaction by applying CUP method. The AE has provided similar services to other entities for which ....