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2011 (5) TMI 365 - AT - Income TaxInternational transaction - Addition - Royalty - the explanation offered by the assessee justifying increase in the rate of royalty of carcass grade of products was not accepted by the TPO and adopting the rate of royalty at 2 per cent on the said product as arm's length price, he held that the royalty paid by the assessee in excess of 2 per cent was liable to be disallowed - the arm's length price needs to be determined by the most appropriate method, determination of which would depend, inter alia, on the nature of transactions, functions performed by the associated enterprise etc. Rule 10C(2) of Income-tax Rules, 1962 - if the facts of the present case are considered in the light of the above factors, CUP method cannot be regarded as most appropriate method for determining arm's length price of the royalty paid by the assessee to M/s Cabot Corporation, USA as there is no data available in respect of uncontrolled transactions which are similar or at least closely similar to the transactions of the assessee company with its associated enterprise Cabot Corporation, USA - Appeal is allowed by way of remand to AO Regarding royalty - Revenue or capital expenditure - It may also be pertinent to note here that a similar payment of royalty under the same technology agreement was made by the assessee right from the year 1990 and the deduction claimed for the same as revenue expenditure was allowed consistently by the Department in the earlier years - It was held that the intention of the assessee was to acquire technical knowledge or know-how for certain period and the drawings acquired were part of technical knowledge. It was held that the assessee thus did not acquire any asset or benefit of enduring nature and the payments made under the agreement were allowable as revenue expenditure - Appeal is partly allowed
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