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2020 (9) TMI 774 - HC - Income TaxRoyalty payment - extraordinary jurisdiction of this Court - HELD THAT - Royalty payment for one company was only for the 'technology' component like in Maruti Suzuki India Ltd., while the royalty payment was for 'technology and the use of brand' as in assessee / appellant company. Such inherent deficiencies were pointed out thereby making the entire system faulty and fraught with loopholes. Now, it is revealed, during the course of the arguments that the TPO's order was accepted by the AO and the final order of assessment was passed in November 2019. It is not clear whether the assessee / appellant approached the DRT with objections against the draft assessment order. The assessee / appellant ought to have approached the ITAT against this final order of assessment. In such circumstances, this Court opines that the remedies are available in the system and the assessee / appellant ought to have approached the ITAT before approaching this Court, but instead challenged the TPO's order in this Court. We may note, even in the first instance the assessee did the same thing by approaching the Tribunal against the final assessment made. Certainly, as done by it earlier, all the issues can be agitated before the Tribunal. In the final order, the Single Judge had also observed that this Court is of an undoubted opinion that the writ petitioner has not made out any case for the purpose of waiving the efficacious alternate remedy available to the writ petitioner under the provisions of the Act and therefore, this Court is not inclined to entertain the writ petition on merits and adjudicate the issues involved in respect of fixing of average rate of royalty payment. We would like to reiterate the legal position involving invocation of the extraordinary jurisdiction of this Court by placing reliance upon the judgment of a Division Bench of this Court in KALANITHI MARAN, KAVERY KALANITHI 2014 (7) TMI 605 - MADRAS HIGH COURT Writ appeal is disposed of with the above observations with liberty to the assessee / appellant to approach the Tribunal within four weeks from the date of receipt of a copy of this order.
Issues Involved
1. Validity of the Transfer Pricing Officer's (TPO) determination of royalty rates. 2. Discrepancy in the TPO's approach for different assessment years. 3. Exhaustion of available remedies before approaching the High Court. 4. Jurisdiction of the High Court under Article 226 of the Constitution of India. Detailed Analysis 1. Validity of the Transfer Pricing Officer's (TPO) Determination of Royalty Rates The primary issue revolves around the TPO's determination that the royalty paid by the assessee/appellant company to its holding company was higher than the average royalty rates of comparable companies. The TPO concluded that the royalty rate of 3.47% was excessive compared to the average rate of 2.54%, resulting in a disallowance of ?106.67 crores, later revised to ?86.88 crores by the Dispute Resolution Panel (DRP). The ITAT upheld this revised order, and the TPO reiterated the disallowance after re-evaluation. 2. Discrepancy in the TPO's Approach for Different Assessment Years The appellant contended that the TPO used different yardsticks for different assessment years. For the assessment year 2007-08, the TPO accepted royalty rates from Wikipedia, which led to the ITAT allowing the entire royalty paid as an allowance. However, for the assessment year 2008-09, the TPO rejected the same source, highlighting an arbitrary and illogical approach. This inconsistency was a significant point of contention, suggesting a lack of a standard procedure in assessing the Arm's Length Price (ALP). 3. Exhaustion of Available Remedies Before Approaching the High Court The Single Judge dismissed the writ petition on the grounds that the appellant had not exhausted all available remedies. The court noted that the appellant should have approached the ITAT against the final assessment order passed in November 2019. The appellant’s failure to utilize the statutory remedy before approaching the High Court was a critical factor in the dismissal of the writ petition. 4. Jurisdiction of the High Court Under Article 226 of the Constitution of India The court emphasized the principle that the High Court's jurisdiction under Article 226 is discretionary and should not be exercised if an effective alternative remedy is available. The court cited several precedents, including the Supreme Court's ruling in Commissioner of Income Tax and others Vs. Chhabil Dass Agarwal, which held that a writ petition should not be entertained if the statute provides a mechanism for redressal of grievances. The court reiterated that the High Court could exercise its jurisdiction in cases where there is a breach of natural justice or lack of jurisdiction, but such circumstances were not present in this case. Conclusion The writ appeal was disposed of with the observation that the appellant should approach the ITAT within four weeks. The court left all issues open to be agitated before the Tribunal, emphasizing the importance of exhausting statutory remedies before invoking the High Court's jurisdiction under Article 226. The connected Miscellaneous Petition was closed, and no costs were imposed.
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