The Tax Publishers2020 TaxPub(DT) 5390 (Del-Trib)

INCOME TAX ACT, 1961

Section 92CA

Royalty paid to AE, parent in USA, cannot be disallowed under ALP benchmarking alleging that the international logistics and freight forwarding business was already benchmarked on Functional and risk analysis (FAR) basis, thus, royalty further cannot be allowed. What came to the rescue of the assessee was that they established that similar royalty exists in the international logistics industry as a fact.

Transfer pricing - International freight forwarding business - Sustainability of royalty paid to AE, parent company in USA -

Assessee had paid royalty for the network and branding they were availing, to their US parent AE. It was the case of the AO/TPO that their entire freight forwarding and logistics business was already measured at ALP on Functional and risk analysis (FAR) basis. Beyond this, royalty payment was not required, this warranting disallowance. On facts, assessee's plea was that the payment of royalty was made to the parent US AE, and not to those entities with whom logistics activities were done. Thus, it was a separate transaction and does not warrant any ALP disallowance. On appeal, CIT(A) allowed the plea of the assessee. Held: The payment of royalty being a separate transaction has to be benchmarked separately outside the logistics business, thus, does not require any disallowance citing that the logistics business was already benchmarked using FAR.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2005-06


INCOME TAX ACT, 1961

Section 40(a)(i)

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