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2017 (1) TMI 389 - DELHI HIGH COURT

2017 (1) TMI 389 - DELHI HIGH COURT - TMI - Segregation of the transaction including inter alia royalty and fee for technical services - TPA - Held that:- There can be no strait jacket or inviolable rule in this regard. The recent judgment of this Court in Sony Ericsson Mobile Communication India (P) Ltd. vs Commissioner of Income Tax (2015 (3) TMI 580 - DELHI HIGH COURT) stated that aggregation of such transaction is permissible and relied upon the OECD Commentary in this regard. At the same ti .....

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ts had to be viewed along with all other expenses and, therefore, aggregated. The Revenue’s contention, however, is to the contrary. - The entire issue as to whether aggregation is warranted in the circumstances, should be gone into afresh in view of the law declared in Sony Ericsson (supra) and clarified in Magneti Marelli (2016 (11) TMI 123 - DELHI HIGH COURT) wherein held if the transactions are, in the opinion of the TPO, not at arm's length, the required adjustment has to be made, as pr .....

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ve of it, may be discerned in comparable transactions. - As far as the issue of most appropriate method is concerned, this Court is of the opinion that no definitive ruling ought to be given at this stage. As to whether in the event of de-segregation the CUP method is the most appropriate rather than TNM method should in our opinion be left open for consideration depending on the determination of the issue of aggregation/ de-segregation itself. In other words, that whether in the event of de .....

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with Mr. Paras Chaudhary, Adv. Respondent Through: Mr. Dileep Shivpuri, Mr. Sanjay Kumar and Mr. Vikrant A. Maheshwari, Advs. O R D E R 1. Issue notice. 2. Mr. Dileep Shivpuri accepts notice for the respondent. With consent, the appeal is taken up for disposal. 3. The question of law sought to be urged in this appeal by the assessee is: whether the Income Tax Appellate Tribunal (in short the Tribunal) was right in holding that segregation .....

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as a trademark and technical know-how licensing arrangement which required the assessee to pay a fixed percentage i.e. 8% of the net ex-factory sale price exclusive of excise and other duties, in accordance with the formulae agreed upon by the parties. The second agreement dated 25.06.2009 was for the purposes of providing High Technical Support on a continuous monitoring basis. In terms of the latter agreement the assessee agreed to the posting of foreign company s personnel in its u .....

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ncontrolled Price (CUP) method. The assessee s appeal - to the Dispute Resolution Panel (DRP) and thereafter to the Tribunal, were to no avail. Therefore, this appeal is preferred before this Court under Section 260A of the Income Tax Act 1961(in short the Act). 6. It is urged by Ms. Bansal, the learned senior counsel, that two agreements and the amounts paid thereunder were part of a composite understanding between the parties i.e. the licensor on the one hand and the assessee on the .....

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ned counsel for the respondent, urged that once the de-segregation is possible, the most appropriate method mandated by law, i.e. Section 92C of the Act along with Rule 10B, is that the separated transactions are to be viewed independently through the most appropriate method and that the corollary, therefore, was the application of the CUP method. 8. So far as the question of aggregation or desegregation, as the case may be concerned, we notice that there can be no strait jacket or in .....

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ssessee s claime that aggregation is essential in a given case is an entirely fact dependent exercise to be viewed having regard to the nature of the transaction and the surrounding circumstances. The assessee contends that the amounts paid under the royalty license and technical support agreements had to be viewed along with all other expenses and, therefore, aggregated. The Revenue s contention, however, is to the contrary. 9. Recently in the judgment of this Court in Magneti Marell .....

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r the technical know-how, the assessee agreed to compensate the AE through a fee amounting to US $ 2 million for each LTAA (total US$ 8 million equivalent to over ₹ 38 crores) on installment basis. It explained that the overseas AE provides crucial and pivotal support to the assessee in carrying out its business in India by providing access to patented products and technology developed by it. The assessee argued that without receiving such technology/technical know-how/ information/assista .....

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-10 and FY 2010-11) against a total payment of US $ 8,000,000, equivalent to ₹ 38.59 crores paid in FY 2008-09. During the transfer price proceedings, the assessee was unable to substantiate the need for payment of technical assistance fees to its foreign AE. The TPO has observed that the assessee tried to establish its case for the arm's length nature of the transaction by stating that it gained in the form of higher sales. The TPO observed that neither any cost benefit analysis nor a .....

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the international transaction was at Arms Length. Its TP report necessarily had to draw a comparison with other entities (maybe competitors) to show the general degree of profitability of the venture in question. The lower authorities quite correctly turned down the method of explaining the justification of the technical fee-with "proof" of its necessity by relying on profits. Undoubtedly the assessee was obliged to make the payment and that obligation arose from the agreements, a pre- .....

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owable under other provisions of the Act. There can conceivably be various reasons not to subject such payments, such as for instance, if no similar data exists at all; or that sectional data for such payments is absent. Quite possibly, this may also be a general pattern of expenditure which AEs may insist to part with technology; further, similarly, other models of payment-deferred or lumpsum, along with royalty or inclusive of it, may be discerned in comparable transactions. However, to say th .....

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