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| The Tax Publishers2022 TaxPub(DT) 1813 (Bang-Trib) : (2022) 094 ITR (Trib) 0247 INCOME TAX ACT, 1961
Section 92C
Where TPO and the Dispute Resolution Panel had not brought on record the comparable uncontrolled price for determination of ALP of royalty payment, without doing that, ALP could not be determined at nil. Hence, such determination of the arm's length price of royalty payment as nil by TPO was unsustainable and bad in law.
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Transfer pricing - Computation of ALP - Adjustment of royalty -
Assessee entered into an inter-company sub-license agreement for payment of royalty to use a trade name and had to pay 'royalty' equal to 3 per cent. in respect of third-party gross revenues. It selected transactional net margin method (TNMM) as the most appropriate method (MAM) and computed its margin accordingly at 33.37 per cent. on operating cost and treated as arm's length. TPO, however, held that no independent party would pay royalty under similar circumstances. Therefore, TPO determined the arm's length price of the international transaction in respect of 'royalty' as Nil by applying comparable uncontrolled price method. Held: In order to determine the arm's length price of royalty payment at nil using the comparable uncontrolled price method, the TPO and the Dispute Resolution Panel ought to have brought on record the comparable uncontrolled price. Without doing that, the arm's length price could not be determined at Nil. Hence, such determination of the arm's length price of royalty payment as Nil was unsustainable and bad in law. In the absence of a comparable uncontrolled price for the royalty payment on a stand-alone basis, the international transaction should necessarily be bundled with other international transactions and the net profit margin of all the international transactions should be compared with the adjusted net profit margin of the comparable companies to arrive at the arm's length price. The application of the transactional net margin method by the assessee at the entity level for computation of the arm's length price of all international transactions was, therefore, permissible.
Relied:Jt. CIT v. Toyota Kirloskar Motor (P) Ltd. [ITA. Nos. 2016/Bang/2018 and 1972/Bang/2018, dated 18-8-2021) : 2021 TaxPub(DT) 4884 (Bang-Trib), Maruti Suzuki India Ltd. v. CIT (2016) 381 ITR 117 (Del) : 2015 TaxPub(DT) 5219 (Del-HC) and Sony Ericsson Mobile Communications India (P) Ltd. v. CIT (2015) 374 ITR 118 (Del-HC) : 2015 TaxPub(DT) 1653 (Del-HC).
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2009-10
INCOME TAX ACT, 1961
Section 92C
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