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The Tax Publishers Lumax Industries Ltd. v. DCIT [ITA No. 6212/Del/2013, dt. 22-4-2016] : 2016 TaxPub(DT) 2029 (Del-Trib) TP addition of royalty at NIL in the case of a deemed AE. *Facts:* Assessee automotive ancillary in lighting business had to pay royalty to its Technical collaborator Stanley Electric Japan since 1984. During assessment year 2003-04 Stanley Japan had appointed an executive director in the assessee company. Since deemed AE provisions came into effect in the law during the assessment year the royalty was benchmarked for AE transactions and read as NIL in the absence of benefit test. The fact of royalty being paid since 1984 even during pre-deemed AE period with due approval from RBI in line with FEMA provisions and then benefit test was not questioned or raised was now questioned was contested by the assessee. DRP upheld the addition. The benchmarking method used by assessee was TNMM thus once transactions are aggregated there was no need to see royalty on stand alone basis. Thee TPO used the CUP logic and made the NIL royalty ALP reading. This was also contested. On appeal: Held by the ITAT that the royalty addition was incorrect. Simply because of the deeming AE nothing changed in the transaction the tie up and collaboration has only continued as it is seen from the agreement. Similar royalty payments exist in the auto ancillary business as seen in the following judgments. 1. Sona Okegawa Precision Forgings Ltd. v. ACIT (ITANo.4781/Del/2010) 2. ACIT v. Sona Okegawa Precision Forgings Ltd. (ITANo.260/Del/2010). 3. CIT v. Federal Mogul TPR India Ltd. (ITA No.398/2012) 4. Climate Systems India Ltd. v. CIT (2009) 319 ITR 113(Delhi) 5. CIT v. Eicher Motors Ltd. (2007) 293 ITR 464 (MP) 6. Praga Tools Ltd. v. CIT (1980) 123 ITR 773 (A&P) 7. Ekl Appliances (2012-TII-01-HC-DEL-TP) 8. Ericsson India Pvt. Ltd. v. DCIT (2012-TII-48-ITAT-Del-TP) 16 ITA No.4456/Del/2012 Once TNMM is applied there is no need to use CUP. Even if CUP is used the assessees payments are in line with market. As for benefit test - the department cited 2015-TII-51-HC-P&H-TP CIT v. M/S Knorr-Bremse India Pvt. Ltd. decision. The ITAT negated this by citing the own decision para 29 as under :-- "29. We hasten to add that in the case before us the assessee has, in fact, contended that it has benefited from the international transactions entered into by it with its AE's. However, even assuming that this has not been established, it would make no difference." Assessees own case of ITAT also came to the rescue for assessment year 2008-09 in ITA No.4456/Del/2012. Also Applied: Interra Information Technology (I) Pvt. Ltd. v. DCIT, 2012-TIOL-142- ITAT-DEL-TP on similar facts of pre-AE relationship and post AE relationship TP additions were dismissed on rule of consistency to be followed by the ITAT.

The Tax Publishers

Lumax Industries Ltd. v. DCIT [ITA No. 6212/Del/2013, dt. 22-4-2016] : 2016 TaxPub(DT) 2029 (Del-Trib)

TP addition of royalty at NIL in the case of a deemed AE.

Facts:

Assessee automotive ancillary in lighting business had to pay royalty to its Technical collaborator Stanley Electric Japan since 1984. During assessment year 2003-04 Stanley Japan had appointed an executive director in the assessee company. Since deemed AE provisions came into effect in the law during the assessment year the royalty was benchmarked for AE transactions and read as NIL in the absence of benefit test. The fact of royalty being paid since 1984 even during pre-deemed AE period with due approval from RBI in line with FEMA provisions and then benefit test was not questioned or raised was now questioned was contested by the assessee. DRP upheld the addition. The benchmarking method used by assessee was TNMM thus once transactions are aggregated there was no need to see royalty on stand alone basis. Thee TPO used the CUP logic and made the NIL royalty ALP reading. This was also contested. On appeal:

Held by the ITAT that the royalty addition was incorrect. Simply because of the deeming AE nothing changed in the transaction the tie up and collaboration has only continued as it is seen from the agreement. Similar royalty payments exist in the auto ancillary business as seen in the following judgments.

1. Sona Okegawa Precision Forgings Ltd. v. ACIT (ITANo.4781/Del/2010)

2. ACIT v. Sona Okegawa Precision Forgings Ltd. (ITANo.260/Del/2010).

3. CIT v. Federal Mogul TPR India Ltd. (ITA No.398/2012)

4. Climate Systems India Ltd. v. CIT (2009) 319 ITR 113(Delhi)

5. CIT v. Eicher Motors Ltd. (2007) 293 ITR 464 (MP)

6. Praga Tools Ltd. v. CIT (1980) 123 ITR 773 (A&P)

7. Ekl Appliances (2012-TII-01-HC-DEL-TP)

8. Ericsson India Pvt. Ltd. v. DCIT (2012-TII-48-ITAT-Del-TP) 16 ITA No.4456/Del/2012

Once TNMM is applied there is no need to use CUP. Even if CUP is used the assessees payments are in line with market.

As for benefit test - the department cited 2015-TII-51-HC-P&H-TP CIT v. M/S Knorr-Bremse India Pvt. Ltd. decision. The ITAT negated this by citing the own decision para 29 as under :--

"29. We hasten to add that in the case before us the assessee has, in fact, contended that it has benefited from the international transactions entered into by it with its AE's. However, even assuming that this has not been established, it would make no difference."

Assessees own case of ITAT also came to the rescue for assessment year 2008-09 in ITA No.4456/Del/2012.

Also Applied: Interra Information Technology (I) Pvt. Ltd. v. DCIT, 2012-TIOL-142- ITAT-DEL-TP on similar facts of pre-AE relationship and post AE relationship TP additions were dismissed on rule of consistency to be followed by the ITAT.