INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - MAM - TNMM or PSM--Payment of royalty to AE for use of technology

Assessee company was engaged in manufacture of automotive front axle, rear axle and propeller shaft. and was vendor to Toyota Kirloskar Motors Ltd. for their vehicles sold under the brand name 'Qualis' and 'Innova' for axles and propeller shafts. One of the international transaction between assessee and its AE viz., Toyota Motor Corporation, Japan [TMC], was payment of royalty under agreement between assessee and TMC. TMC was to provide technical know-how, which includes process know-how, designs & drawings to manufacture transmission units and axles & propellers, shafts and engine assembly. There was Technical Assistance Agreement for axles and propeller shaft for IMV. As per agreement, assessee was to pay TMC royalty for using technology of which TMC had a right to permit the assessee to use the technology. A sum of Rs. 48 crores was paid as royalty by assessee. Assessee chosed Transaction Net Margin Method (TNMM) as the Most Appropriate Method [MAM] for determining ALP. TPO rejected and applied Profit Split Method [PSM] as the MAM.Held: Assessee leveraged on use of technology from AE and did not contribute any unique intangibles to the transaction. It might be true that assessee aggregated payment of royalty with transaction of manufacturing as it was closely linked and adopted TNMM but that did not mean that transactions were so interrelated that they could not be evaluated separately for applying PSM. Further, assessee did not make any unique contribution to the transaction, hence PSM could not be applied and TNMM was the MAM in case of assessee.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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