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2020 (5) TMI 650 - AT - Income TaxTP Adjustment - payment made to its AE towards Maintenance services relating to software licenses - determine ALP of transaction under TNMM method - TPO has restricted the payment made to AE to 10% by holding that 10% shall be the ALP of the transactions - HELD THAT:- The assessee herein is the distributor of software licenses of its AE. Hence there should not be any dispute that core technical problems could only be resolved by its AE. Unless proper and appropriate maintenance services are provided to its customers, it would be difficult to market the software licences. There is merit in the contentions of the assessee that the distribution of software licenses and their maintenance are inter-linked. Accordingly, we are inclined to agree with the contentions of the assessee. TPO was not justified in viewing maintenance services as separate from the distribution activity. We notice that the assessee and its AE have agreed that the assessee shall make payment of 40% of the revenue realised on sale of software licenses and on entering into maintenance contracts. A.R has further pointed out that the above method of sharing the revenue has been accepted to be at Arms length under TNMM method in the immediately preceding year and succeeding year. Hence we agree with the contentions of the assessee that there is no reason to take a different view in this year alone by re-characterising the payment relating to maintenance services alone. Accordingly, we set aside the order passed by the AO/TPO in this regard. Accordingly we direct them to determine ALP of transaction under TNMM method by aggregating them. Appeal of the assessee is allowed.
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