TMI Blog2011 (12) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... ious evidences to prove that royalty payment at 8% on export and 5% on domestic sales has been referred as a reasonable payment. However, TPO failed to bring any material on the record which can suggests that payment of royalty @ 3% was excessive, and not at arm's length price. Moreover, no material was brought on record to show that sales price charges was not at arm's length. TPO further not brought any material indicating the fact that assessee is a contract manufacturer. He only draws inference in this regard. Thus, after taking into consideration the facts and circumstances and the findings of the CIT (Appeals), we do not find any merit in this appeal – Decided against the Revenue. - IT Appeal No. 5386 (Delhi) of 2010 - - - Dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had undertaken international transactions with its overseas associates enterprises, namely, Mitsubishi Material Corporation, Japan, (MMC) and Metal Singapore, PTE Ltd., Singapore worth over Rs. 16 crores. He made a reference to the learned Transfer Pricing Officer (TPO) under sec. 92CA of the IT Act for determination of arm's length price of such transactions. Learned TPO passed a detailed order under sec. 92CA(2) of the Act on 27.8.2008. He recommended for an adjustment of Rs. 19,37,386 in the arm's length price of international transaction. This adjustment has been recommended on account of royalty paid by the assessee to it's A.E. Learned Assessing Officer has made an addition of Rs. 19,37,386 in the total income of the assessee. 3. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y paid by the assessee to MMC is well within the limit set up by the Government of India. It has followed cup method as a preferred method for determining the arm's length price for royalty paid to collaborators i.e. AE. 5. Learned TPO had analyzed this transaction and observed that assessee manufactured the goods and sold those goods to the AE. These goods are specific goods which have been produced for the associate enterprises. The technology has been received from the AE for producing these goods, therefore, the assessee has to be construed as a contract manufacturer for these products. The payment of royalty in the case of a contract manufacturer to the AE is not justified as per OECD guidelines. He made a reference to para Nos. 16.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have gone through the above submission of the appellant and have also perused the TPO's order. From the facts of the appellant's case it is observed that the royalty fee is being paid by the appellant under the Technology agreement to the A.E and is it computed on the basis of the entire production, no distinction is made between the products sold to the A.E or sold to the independent parties. As a result of which the fees is paid on the sales made to the A.E also. The only thing which the A.O. should have seen that whether the appellant is charging arm's length prices to the A.E. for the end product sales or not. Since no material has been brought on record by the TPO which indicates that the prices being charged by the appellant in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considered the rival contentions and gone through the record carefully. To our mind, there are two aspects. The first aspect is whether the royalty paid by the assessee @ 3% is excessive and not computed at arm's length price. We find that the assessee has placed on record copy of the letter dated 30.4.1993 written by the RBI, Exchange Control Department to M/s. Sona Steering System Ltd. wherein royalty @ 3% on domestic sales subject to taxes for a period of five years was allowed to be paid. There are similar other correspondence which have been placed on the paper book. Similarly, on page 51 of the paper book, a press note issued in 2003 issued by the Government of India, Ministry of Commerce Industries, Department of Industrial Polic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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