9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (3) TMI 1023 - AT - Income TaxTP Adjustment - adjustment made to the international transaction of royalty paid by the assessee to the associate enterprise - benchmarking done by the assessee by adopting internal CUP - second round of litigation before the ITAT - assessee had paid royalty at the rate of 5% - HELD THAT - It is a fact on record and has not been denied by the Revenue, that the assessee s agreement for payment of royalty was for transfer of technology for assembling of entire vehicle and similarly also in the case of comparable selected by the assessee royalty was paid for transfer of technology for assembling of entire vehicles. The comparable selected by the Revenue on the other hand, are for transfer of technology for manufacturing of particular part of the vehicles. Surely technology for assembling vehicles and that for manufacturing a particular part cannot be the same. Merely because the technology for assembling cars and manufacture of parts relate to the same project does not mean that the technology transferred is the same. Apparently technology for assembling cars and that for manufacturing parts of car are different. At least this is what any layman would understand. Revenue has given no technical input as to how the two technologies are the same in the circumstance that they relate to the same project of vehicle manufactured/assembled. It is abundantly clear therefore that the comparable selected by the assessee is the correct comparable being payment of royalty for technology acquired for identical activity as availed by the assessee, while that of the TPO are for totally different activity We uphold the benchmarking done by the assessee by adopting internal CUP and delete the adjustment made to the ALP of royalty transaction - Ground raised by the assessee is allowed.
Issues:
Adjudication of adjustment made to the international transaction of royalty paid by the assessee. Detailed Analysis: 1. The appeal was filed against the order passed by the Transfer Pricing Officer (TPO) under section 92CA(3) of the Income Tax Act, 1961 for the Assessment Year 2007-08. The key issue was the adjustment made to the income of the assessee by the TPO on account of determining the arm's length price (ALP) of the international transactions of royalty paid by the assessee to its associate enterprise, GM Daewoo Auto & Technology Company (GMDAT). The TPO determined the ALP at 3% as opposed to the 5% claimed by the assessee, resulting in an upward adjustment of royalty payment. The dispute centered around the correctness of the comparables selected by the TPO for benchmarking the ALP of the transaction. 2. The assessee contended that the internal comparable it selected, based on a technology license agreement between GMDAT and Isuzu, was more appropriate as it involved the transfer of technology for assembling entire vehicles, similar to the agreement with GMDAT. In contrast, the comparables chosen by the TPO, Delphi-Jinzhou and Namyang Henglong agreements, were for the transfer of technology for manufacturing single components, not entire vehicles. The assessee argued that the comparables selected by the TPO were not suitable for benchmarking the royalty payment transaction. 3. The Tribunal analyzed the terms and conditions of the agreements and found that the technology for assembling entire vehicles was different from that for manufacturing specific parts. The Tribunal agreed with the assessee that the internal comparable chosen was appropriate as it involved the transfer of technology for the same activity as the assessee's agreement with GMDAT. Consequently, the Tribunal upheld the benchmarking done by the assessee using the internal comparable and deleted the adjustment made by the TPO to the ALP of the royalty transaction. 4. The Tribunal's decision reversed the earlier order and allowed the appeal of the assessee, emphasizing the importance of selecting correct comparables for determining the arm's length price in international transactions. The judgment was pronounced on 23rd November 2022 in Ahmedabad.
|
