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TMI Blog2017 (1) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that segregation of the transaction including inter alia royalty and fee for technical services, was not permissible in the circumstances of the case. 4. The facts necessary for disposal of this appeal, having regard to the final order that this Court proposes to pass, are that the assessee entered into an arrangement with the Gruner AG towards licensing of its brand and also for supply of technical know-how. These were evidenced by two agreements dated 06.03.2009 and 25.06.2009. The first agreement was a trademark and technical know-how licensing arrangement which required the assessee to pay a fixed percentage i.e. 8% of the net ex-factory sale price exclusive of excise and other duties, in accordance with the formulae agreed upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . the CUP method was inappropriate. The learned counsel highlighted that so far as the other transactions were concerned, the AO accepted the application of the Transactional Net Margin (TNM) method. 7. Mr. Shivpuri, the learned counsel for the respondent, urged that once the de-segregation is possible, the most appropriate method mandated by law, i.e. Section 92C of the Act along with Rule 10B, is that the separated transactions are to be viewed independently through the most appropriate method and that the corollary, therefore, was the application of the CUP method. 8. So far as the question of aggregation or desegregation, as the case may be concerned, we notice that there can be no strait jacket or inviolable rule in this regard. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the AE through a fee amounting to US $ 2 million for each LTAA (total US$ 8 million equivalent to over Rs. 38 crores) on installment basis. It explained that the overseas AE provides crucial and pivotal support to the assessee in carrying out its business in India by providing access to patented products and technology developed by it. The assessee argued that without receiving such technology/technical know-how/ information/assistance from the overseas AE, the assessee would not be able to conduct/carry out manufacturing and sales of ECUs in India at all. The assessee strengthened this contention by saying that it earned revenue of Rs. 42.23 crores from the sale of ECUs using the above mentioned technical know-how as a result of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f" of its necessity by relying on profits. Undoubtedly the assessee was obliged to make the payment and that obligation arose from the agreements, a pre-incorporation binding contract. However, that such contractual obligation existed cannot ipso facto be the end of the enquiry. ALP determination in respect of every payment that is part of an international transaction is to be conducted irrespective of such obligation undertaken by the parties. If the transactions are, in the opinion of the TPO, not at arm's length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act. There can conceivably be various reasons not to subject such paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod should in our opinion be left open for consideration depending on the determination of the issue of aggregation/ de-segregation itself. In other words, that whether in the event of de-segregation, which would be the appropriate method, should be left to the TPO to decide, after hearing counsel for the parties. However, we clarify that in the event it is held that aggregation is permissible in the facts of this case, the findings of the Revenue authorities and the Tribunal that the TNMM method was warranted, would not be disturbed. 12. In the light of the above findings, the appeal is partly allowed. The matter is remitted for re-consideration by the concerned TPO, who shall hear counsel for the parties and render findings on both asp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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