TMI Blog2010 (1) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... ai for the assessment years 2002-03 and 2003-04. As the issue as well as facts are identical hence both these appeals are disposed off by this common order. 2. The first common issue in respect of disallowance of royalty paid by the assessee to C A Management Inc USA (in short 'CAMI') for distribution of the software products in India. 3. The facts, which reveals from the record are as under. The assessee-company is a 100% subsidiary company incorporated in 1998 under the Indian Companies Act, which is one of the subsidiaries of Computer Associates International Inc USA. The assessee is primarily engaged in the business of licensing mainframe and midrange and system infrastructure software products of CA Management Inc. of USA. The assessee has set-up a Technical Support Centre in Chennai to provide support services to end users of the software products on behalf of the CA Management Inc. The business activity of the assessee company summarily can be put as under:- (i) Licensing mainframe midrange and system infrastructure software products of CA Inc; (ii) Software that can be generally deployed "Out of box" or with customer/industry specified adaptations; (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons given by the TPO are as under:- "The contention of the company are considered, however, the same are not acceptable for the following reasons:- (i) The invoices were raised during FY 2001-02, the decision of write off was taken in all the cases, in the meeting of Board of Directors of the company held on 07.03.2002 at Phuket, Thailand. (ii) As mentioned in the agreement between the company and CAMGT, the company was to submit a monthly report regarding all the product licenses consummated by the distributor and the payments collected. This means that, in respect of invoices raised, the company should be intimating the collection position with regard to invoices. Due to this, the intimation regarding uncollected invoice was available with the licensor on monthly basis. (iii) Once the decision of write off of bad debts for the invoices raised during the current year was taken on 07.03.2002. This amount would get reflected as amount non-receivable in the monthly reports, which would be available with the licensor. If such reports were available with the licensor for the amount of invoices raised during the year and written off during the year, the licensor should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voiced amount during the year, itself. (ix) The agreements entered into by the CA India with the clients are in standard agreements, as referred in the Distributor agreement. As per the software license agreement entered into by CA India with clients, it is mentioned that the licensed programme belongs to Computer Associates International Inc. Had the Computer Associates licensed the products directly the clients, it could have suffered that bad debts, as the company has suffered. (x) In view of the fact that the CA India was only acting as Distributor, the products belonged to the licensor, these were the initial years of the business of CA India, in the country, the bad debts risks were likely to be there, these facts would certainly be considered by the Independent Parties, while entering into distributor agreement and non payment of royalty, on non realisation of the proceeds would certainly be a condition in agreement entered at arm's length. In view of the above, the Arm's Length Price of Royalty corresponding to invoices raised and written off during the year is computed at NIL as against transaction value reported of Rs. 4,709,755/-." 5. Following the TPO's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed:- [Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean.] (3) Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that:- (a) the price charged or paid in an international transaction has not been determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an International transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or dat ..... 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