TaxTMI 
TaxTMI 
2018 (2) TMI 1280
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....,92,49,906/- as against loss of Rs. 263,71,10,5311- 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 i....
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....ng objections who has disposed of the objections. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 5. We have heard the 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 b....
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....pan (YMC) has granted the Company an exclusive, non-transferable and non-divisible to use the technical information - - To manufacture or process locally manufactured parts at its factory premises and 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, whi....
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....oted that similar technology is not available with non-AEs and is not readily available in the open market, and is developed by YMC specifically for the Assessee. Accordingly it is not possible to undertake any benchmark analysis to compare payment of royalty with any non-AEs at the time of execution of agreement for royalty. 11. The benefit 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 de....
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....egation of the TPO is that the introduction of the technology has signalled the beginning of a phase of spiralling losses for the assessee. Firstly it is incorrect observation and even otherwise losses cannot be a ground for not paying royalty for the services availed from the AE. 20. The reasoning of the TPO that in this competitive market, the mere presence of a brand name is not enough to ensure commercial success 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 dete....
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....na High Court in the case of M/s Knorr-Bremse India Pvt. Ltd. vs. ACIT, ITA No. 182 (2013) dated 6th November, 2015 where the Court held as under:- "20. A reading of the orders of the TPO, the DRP and of the Tribunal makes it clear that one of the main reasons for not accepting the assessee's case was that the assessee had not been able to substantiate that the payment for the services had actually increased its profits. As we noted earlier, 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 tr....
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....ssessee to earn profit is one thing and the price paid for the same is another thing altogether. Profit is a motive and the aim of a venture. The factors that are involved in achieving this objective are the means of achieving this end. Absent any special term in the contract, the seller of goods or the provider of services is not concerned whether its purchaser profits from the use that the goods or services are put to. It is concerned with the same only in so far as the usefulness 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 transacti....