INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Payment of royalty to AE over and above royalty paid for technical know-how -

Assessee claimed deduction of royalty payment on trademark @ 1% and royalty payment on technical know-how @ 1.25% of net sales made by it to its AE abroad. TPO took the view that royalty for technical know-how subsumed royalty for trademark and, therefore, separate royalty for trademark paid @ 1% could not be allowed to assessee.Held: So far as the payment of royalty on technical know-how @ 1.25 was concerned, assessee had been paying to the same its parent AE right from 1993 and the payment was at par with similar payments from group companies in other countries and region. Besides this, payment was made as per approval given by RBI and SIA, Government of India. Hence, there could not be any scope of doubt that royalty payment on technical know-how was not at arm's length. Coming to the issue of royalty payment on trademark usage, assessee was in fact paying a lesser amount, if payments were compared with payments towards trademark usage, by other group companies using the Brand Cadbury in other parts of the world and the payment was at par with similar payments from group companies in other countries and region and payment of royalty for trademark at 1% over and abvoe the royalty paid at 1.25% for technical know-how had been approved by the Reserve Bank of India. Accordingly, royalty payment on trade mark to AE @ 1% of net sales was at arm's length, hence, no further adjustment was required.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2008-09

INCOME TAX ACT, 1961

Section 92C

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