INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determined of ALP - Payment of franchisee fee to AE - TPO determiend nil ALP applying benefit test

Assessee paid franchisee fee to its AE abroad. TPO questioned need for payment of franchisee fee separately and applying benefit test in respect of the transaction. Held: Under the scheme of transfer pricing as contained in Chapter X, the role of TPO as envisaged under section 92CA is computation of ALP in relation to the international transaction under section 92C. TPO has no jurisdiction to question assessee's need or prudence for making payment for the said international transaction. TPO failed to determine ALP of the transaction between assessee and its AE despite the fact assessee furnished relevant documents. From perusal of agreement on reocrd it was evident that AE (Franchsor) had authorized assessee (Franchisee) to use Trade Marks, IP Rights, Marks, etc., as pert of the System. For use of aforesaid System assessee remunerated AE by way of aggregate annnual franchisee fee. TPO at threshold discarded payment of fanchisee fee on the ground of need of such payment. TPO exceeded his jurisdiction in making such observation. TPO could not step into the shoes of assessee to decide prudence of expenditure. He failed to examine documnts furnished by assessee to benchmark the transaction by applying one of the methods specified in Chapter X. Thus. TPO was not justified to determined ALP of franchisee fee at nil.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

INCOME TAX ACT, 1961

Sections 234A to 234D

SUBSCRIBE FOR FULL CONTENT