GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (10) TMI 2509 - DELHI HIGH COURT

2015 (10) TMI 2509 - DELHI HIGH COURT - TMI - ALP of the payment of royalty - Held that:- On the question of addition made by the AO on account of ALP for the payment of royalty, learned counsel for the Assessee has rightly referred to the decision in Commissioner of Income Tax v. Sony Ericsson Mobile Communication (2015 (3) TMI 580 - DELHI HIGH COURT ) where the determination of the ALP of the royalty paid as Nil was not approved. There is merit in the contention of learned counsel for the Asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, after a detailed examination of the clauses of the collaboration agreement, the Assessee did receive full technical assistance from Stanley for which the royalty payment was made. Thus the Court is not inclined to frame a question on the issue of deletion of the addition sought to be made by the AO for the AYs in question on account of ALP of the payment of royalty. - Adjustment under Section 115JB on account of provision for retirement benefits - Held that:- ITAT noted that the provision .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s purposes. The disallowance by the AO of the said expenses was found to be not justified. Since the above finding turned purely on facts, the order of the CIT (A) as affirmed by the ITAT, does not give rise to any substantial question of law. - Disallowance of the expenses on account of provision for warranty - ITAT deleted it since the provision was made by the assessee based on actual warranty expenses incurred for the unexpired warranty period - Held that:- As rightly pointed out by lear .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssessee by the decision in Commissioner of Income Tax v. BSES Rajdhani Power Limited (2010 (8) TMI 58 - DELHI HIGH COURT ). - ITA 102/2014, ITA 103/2014, ITA 104/2014 & ITA 587/2014 - Dated:- 28-10-2015 - S.MURALIDHAR JUSTICE VIBHU BAKHRU For the Petitioner : Mr. Shikhar Garg, Advocate for Mr. Kamal Sawhney, Senior Standing counsel. versus For the Respondent : Mr. Satyen Sethi, Advocate with Mr. Arta Trana Panda, Advocate. ORDER 1. ITA Nos. 102, 103 and 104 of 2015 are appeals by the Revenue und .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng of the present appeals are that the Respondent-Assessee is engaged in the business of manufacturing and sale of lighting products for automobiles. The Assessee entered into a technical collaboration agreement with Stanley Electric Co. Ltd., Japan ( Stanley ) in 1984 in terms of which the Assessee was granted a non- exclusive right and licence to manufacture and sell licensed products under Stanley s patents and technical information in India as well as outside India except Japan. Under the sa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

crores in AY 2004-05. In AY 2005-06 its turnover was ₹ 294 crores. The Assessee states that it enjoyed a 60% market share of the Indian auto lighting industry. Another fact which has relevance and which has not been disputed is that the expenses incurred by the Assessee on account of payment towards royalties to Stanley for AY 1985-86 to 2003-04 has been allowed by the Revenue under Section 37 (1) of the Act as expenditure incurred wholly and exclusively for the purposes of business of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntative of Stanley on the Board of the Assessee, by virtue of Section 92A (2) of the Act, Stanley became an AE of the Assessee. 5. During AYs 2004-05 and 2005-06 the Assessee entered into the following the international transactions: International transactions 2004-05 2005-06 Import of raw material 6,44,50,527 9,14,53,820 Import of capital equipment 62,50,907 7,86,59,617 Payment of royalty 2,03,02,776 2,68,77,737 Import of design and drawings 33,18,000 ... Payment of R&D expenses ...... 11,1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

purpose of Section 115-JB of the Act, the explanation offered by the Assessee for the expenses on account of the provision of retirement benefits was not accepted. The AO held that the Assessee had deliberately concealed particulars of income/filed inaccurate particulars of income so as to evade tax. On the aspect of payment of royalty and purchase of raw materials, which were international transactions, the AO made a reference to the Transfer Pricing Officer ( TPO ) under Section 92CA of the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s technical personnel were in full-time employment of the Assessee. Further since the moulds, drawings and other raw materials had been purchased from Stanley, no further technology was required for manufacturing the auto lights. It was also observed that the Assessee s Engineers did not visit Japan for training. However, no separate addition on account of royalty was made because the adjustment under TNMM was more than the royalty payment. 9. The AO passed an assessment order dated 20th Decemb .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was situated in a Special Economic Zone ( SEZ ) and as such, was enjoying certain benefits which were not available to the Assessee. It was also noticed that in the current AY 2006-07, the TPO itself did not consider Phoenix as a comparable case. Excluding Phoenix, operating profit of other comparable cases was 4.26% whereas operating profit of the Assessee was 6.50%. Therefore, the CIT (A) held the payment of royalty was justified on the comparable uncontrolled price ( CUP ) method. The additio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on account of royalty payment. 13. As regards AY 2007-08 the AO passed an order dated 17th October 2011 making a similar addition regarding payment of royalty on the basis of the report of the TPO as well as the order passed by the Dispute Resolution Panel dated 8th October 2010. This was taken up in appeal before the ITAT by the Assessee by filing ITA No. 5252/Del/2011. As regards AY 2008-09, the Assessee filed ITA No. 4456/Del/2012 before the ITAT against the final assessment order dated 17th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

its net sales, after deduction from the net sale price of the licensed products sold by it to Stanley. Although such payment was to be 4% on the net sales during the year, i.e. AY 2008-09, the royalty was paid @ 2.43% on the sale of licensed products, amounting to ₹ 218.08 crores. This is because the cost of standard imported components, standard local components and certain other deductions had been deducted from the net sales of ₹ 218.08 crores. (iii) In terms of Rule 10B (2) (c), .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xpatriates was charged by Stanley. It was also factually found that during AY 2004-05 technology in respect of the new models of Maruti, Honda was received. Merely because the Assessee had purchased moulds, designs, bulbs, sockets, lenses etc. from Stanley, it did not mean that the technology was not required. Importantly it was noticed by ITAT that for AYs 2004-05 and 2005-06 the entire sale (on which royalty was paid as a percentage) was made to Original Equipment Manufacturers ( OEM ). Theref .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ricsson Mobile Communication (2015) 374 ITR 118 where the determination of the ALP of the royalty paid as Nil was not approved. The Court's attention has also been drawn to the decision in Commissioner of Income Tax v. EKL Appliances Limited (2012) 345 ITR 241 wherein it was held that Rule 10B (1) (a) did not authorize disallowance of any expenditure on the ground that it was not necessary for the Assessee to have incurred such expense. It was observed that though the quantum of expenditure .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lty was not necessary in the present case particularly since the collaboration agreement between the Assessee and Stanley has been continuing since 1984. As held by the ITAT, after a detailed examination of the clauses of the collaboration agreement, the Assessee did receive full technical assistance from Stanley for which the royalty payment was made. 19. In the circumstances, the Court is not inclined to frame a question on the issue of deletion of the addition sought to be made by the AO for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version