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2025 (2) TMI 1031 - AT - Income TaxTP Adjustment - transaction of payment of royalty in relation to licensed manufacturing segment of the Appellant on various models - ALP benchmarking of Royalty Payment to non-UK entities - HELD THAT - Facts and circumstances of the case required the learned TPO to be more objective in his approach to counter the compensation of 4 to 5% accepted in the case of assessee in the MAP proceedings for A.Y. 2013-14 or APA for A.Y. 2018-19 to 2022-23 and the treatment in A.Y. 201-11 2011-12 and 2012-13 when no addition was made in respect of Germany entities for royalty payment of 4-5%. MAP proceedings or APA may not have a precedent effect on different assessee s but in case of same assessee they at least have far reaching persuasive value and without countering anything on the basis of facts coupled with evidence the ends of justice require giving assessee benefit of principles of consistency which are recognized principles for determination of income and adjudication in tax matters. Reliance in this regard can be placed on the judgment of Radha Swami Satsang 1991 (11) TMI 2 - SUPREME COURT However the ld. Tax authorities seems to have artificially distinguished the transaction of assessee with Non-UK and UK AEs to apply a different rate in case of non-UK AE. We are inclined to allow ground nos. 4 to 6 and the additional ground as raised. TPO is directed to accept the parameters of determination of compensation as accepted in APA and accordingly benefit the assessee in determination of ALP of disputed transaction with non-UK AE too.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Determination of ALP for Royalty Payments to Non-UK AEs Relevant Legal Framework and Precedents: The legal framework involves the application of the Indian Transfer Pricing Regulations, which require that international transactions between associated enterprises be conducted at arm's length. The MAP and APA provide mechanisms for resolving transfer pricing disputes and determining ALP. Court's Interpretation and Reasoning: The Tribunal noted that the agreements between the appellant and both UK and non-UK AEs were similar in terms of technology transfer and royalty payments. It emphasized the importance of consistency in applying the same parameters for determining ALP for similar transactions. Key Evidence and Findings: The appellant provided evidence of similar agreements and historical treatment of royalty payments, including the MAP and APA, which determined a royalty rate of 4-5% for UK AEs. Application of Law to Facts: The Tribunal found that the TPO's determination of a 2% royalty rate for non-UK AEs was not supported by evidence and was inconsistent with the treatment of similar transactions with UK AEs. Treatment of Competing Arguments: The Tribunal considered the TPO's arguments for a lower royalty rate but found them unconvincing, particularly in light of the MAP and APA agreements. Conclusions: The Tribunal concluded that the royalty rate of 4-5% should apply to non-UK AEs, consistent with the treatment of UK AEs. 2. Rejection of CUP Method and Adoption of "Other Method" Relevant Legal Framework and Precedents: The CUP method is a recognized method for determining ALP under the Indian Transfer Pricing Regulations. The "other method" is used when traditional methods are not applicable. Court's Interpretation and Reasoning: The Tribunal found that the TPO's rejection of the CUP method was not justified, as the appellant had provided comparable agreements supporting its use. Key Evidence and Findings: The appellant's CUP analysis was based on comparable agreements from the RoyaltyStat database, which the TPO rejected without sufficient justification. Application of Law to Facts: The Tribunal found that the TPO's adoption of the "other method" was arbitrary and not supported by evidence. Treatment of Competing Arguments: The Tribunal considered the TPO's arguments for using the "other method" but found them lacking in evidentiary support. Conclusions: The Tribunal concluded that the CUP method should be accepted for determining the ALP of royalty payments. 3. Principle of Consistency Relevant Legal Framework and Precedents: The principle of consistency is recognized in tax law to ensure similar treatment of similar transactions over time. Court's Interpretation and Reasoning: The Tribunal emphasized the importance of consistency in applying the same parameters for determining ALP for similar transactions with both UK and non-UK AEs. Key Evidence and Findings: The Tribunal noted the historical treatment of royalty payments in past assessment years and the consistency in the MAP and APA agreements. Application of Law to Facts: The Tribunal found that the TPO's approach lacked consistency and was not supported by changes in circumstances. Treatment of Competing Arguments: The Tribunal considered the TPO's arguments for a different treatment but found them unconvincing. Conclusions: The Tribunal concluded that the principle of consistency should apply, and the royalty rate of 4-5% should be accepted for non-UK AEs. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "The facts and circumstances of the case required the learned TPO to be more objective in his approach to counter the compensation of 4 to 5% accepted in the case of assessee in the MAP proceedings for A.Y. 2013-14 or APA for A.Y. 2018-19 to 2022-23." Core Principles Established: The Tribunal established the principle that similar transactions should be treated consistently unless there is a significant change in circumstances. Final Determinations on Each Issue: The Tribunal directed the TPO to accept the parameters of determination of compensation as accepted in the APA and MAP and to apply the same royalty rate of 4-5% to non-UK AEs.
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