TaxTMI 
TaxTMI 
2022 (5) TMI 1620
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....to determination of ALP is with regard to the adoption of the Most Appropriate Method (MAM)in determining the ALP. The nature of the international transaction between the assessee and his AE is that the assessee is a company engaged in the manufacture of automotive front axle, rear axle and propeller shaft. The assessee is vendor to Toyota Kirloskar Motors Ltd. for their vehicles sold under the brand name 'Qualls' and `Innova' for axles and propeller shafts. One of the international transaction between the assessee and its AE viz., Toyota Motor Corporation, Japan [TMC], was payment of royalty under agreement between the assessee and TMC. TMC was to provide technical know-how, which includes process know-how, designs & drawings to manufacture R-150 and C- 550 transmission units and axles & propellers, shafts and engine assembly. There was an agreement dated 19.12.2012 between TMC and assessee and also another agreement dated 27.4.2012 named as Technical Assistance Agreement for axles and propeller shaft for IMV. As per agreement, assessee was to pay TMC royalty for using technology of which TMC had a right to permit the assessee to use the technology. A sum of Rs.46,56,7....
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....of the parties is identified and the profit is split between those parties. In the case of the Assessee the technology is given by TMC, Japan for which royalty is paid. The use of the technology in manufacturing and the sale of the product so manufactured contribute to the profit of the Assessee and TMC, Japan has nothing to do with that. There is therefore absence the first condition for application of PSM as MAM. As submitted by the Assessee PSM is used as MAM only in a case involving transfer of unique intangible or in multiple inter-related international transactions which cannot be valued separately for determining the ALP. The OECD guidelines cited on behalf of the assessee clearly supports the aforesaid approach and the OECD guidelines in this regard reads as follows:- "Further reliance is also placed on OECD Guidelines, which clearly lay down the situations in which the PSM is selected as an appropriate method for benchmarking. The relevant extract from the OECD Guidelines (para 2.109) is as below: "A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (....
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....propriate method could include a high level of integration in the business operations to which the transactions relate and /or the shared assumption of economically significant risks (or the separate assumption of closely related economically significant risks) by the parties to the transactions. It is important to note that the indicators are not mutually exclusive and on the contrary may often be found together in a single case. 2.127. At the other end of the, spectrum, where the accurate delineation of the transaction determines that one party to the transaction performs only simple functions, does not assume economically significant risks in relation to the transaction and does not otherwise make any contribution which is unique and valuable "2.147. Under the transactional profit split method, the relevant profits are to be split between the associated enterprises on an economically valid basis that approximates the divisi6n of profits that would have been anticipated and reflected in an agreement made at arm's length. In general, the determination of the relevant profits to be split and of the profit splitting factors should: Be consistent with the functional analysi....
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....aforesaid decision, we set aside the question of determination of ALP to the TPO afresh applying TNMM as the most appropriate method as was done in Assessment Years 2013-14 and 2014-15 in the order referred to above. The other issues with regard to determination of ALP under the PSM is academic and does not require adjudication. 7. The other grounds which require adjudication is ground Nos.15 to 20 with regard to rate of tax on dividend distributed to non-resident shareholders. The said grounds read as follows: II. Corporate tax 15. The learned AO erred in not providing any reason(s) for not accepting the Company's contention that taxes on dividend paid to the non-resident shareholders should be restricted to the rates mentioned in the relevant tax treaty. Without prejudice to the above 16. The learned AO / Hon' ble DRP erred in not appreciating the fact that Dividend Distribution Tax (`DDT') under section 115-0 of the Act, in case of non-resident shareholders, should be restricted to concessional tax rate on dividends as per the India- Japan Double Tax Avoidance Agreement. 17. The learned AO / Hon'ble DRP erred in concluding that DDT is a tax on the comp....
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.... Taxman 203 / 328 which was rendered in the context of Section 1 4A vis-a-vis, Section 115-0 of the Act. The Court observed that - "The effect of Section 115-0 is that in addition to the income tax chargeable on the total income of a domestic. Company, additional income tax is charged on profits declared, distributed or paid This tax which is referred to as a tax on distributed profits is what it means, namely a tax OH the profits of the Company. This is not a tax on dividend income. Under Section 115-0, the charge is on a component of the profits of the Company, that component representing profits declared distributed or paid. The tax under Section 115-0 is not a tax which is paid by the Company on behalf of the shareholder, nor does the Company act as an agent of the shareholder in paying the tax. Provisions contained in Chapter XIII) are special provisions relating to tax on the distributed profits of domestic companies. Even Section 115-0 in Chapter X II-D clearly states that the additiontl income- lax liability there under is on the amount of profits. declared; distributed or paid by a domestic company as dividend. Thus) the additional income tax under Section 115-0 is a t....