M/S SASKEN TECHNOLOGIES LTD ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE

BEFORE SHRI BR BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER

IT(TP)A No.2471/Bang/2017 Assessment Year : 2013-14

M/s Sasken Technologies The Dy. Commissioner of Ltd., Income-Tax, (Formerly known as Sasken Circle-6(1)(1), Communication Vs. Bengaluru. Technologies Ltd.,) 139/25, Domlur Road, Domlur, Bengaluru-560 071.

PAN – AAECS 6424 R APPELLANT RESPONDENT

Assessee by : Shri Padamchand Khincha, C.A Revenue by : Shri Pradeep Kumar, CIT(DR)

Date of Hearing : 16-07-2021 Date of Pronouncement : 31-08-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER

Present appeal has been filed by assessee against the final assessment order dated 10/10/2017 passed by the Ld.DCIT Circle 6(1)(1), Bangalore, for assessment year 2013-14 on following grounds of appeal: “1. The learned Deputy Commissioner of Income Tax, Circle - 6(1)(1), Bangalore (hereinafter referred as "AO" for brevity), learned Deputy Commissioner of Income Tax (Transfer Pricing Officer) - 2(2)(2), Bangalore (hereinafter referred as "TPO" for brevity) and the Honourable DRP-2 ("AO", "TPO" and DRP collectively referred as "lower authorities" for brevity) have erred in passing the Orders:

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a. Without considering all the submissions and/or without appreciating properly the facts and circumstances of the case and the law applicable; and b. At the fag end of the limitation period. Grounds relating to Transfer Pricing - General:- 2 The lower authorities have erred in: a. Making transfer pricing adjustment of Rs. 2,04,22,991!-; b. Making a reference to Transfer Pricing Officer for determining arm's length price without demonstrating as to why it was necessary and expedient to do so; c. Not appreciating that there is no amendment to the definition of "income" and charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X' and therefore addition under Chapter X is bad in law; and 3. Passing the order without demonstrating that the Appellant had motive of tax evasion. Grounds relating to Transfer Pricing - Brand Royalty:- 4. The lower authorities have erred in: a. Determining adjustment of Rs.1,94,30,176!- under section 92CA in respect of the royalty on alleged usage of brand 'SASKEN' by the AEs. b. Not appreciating that the AEs have not received any financial benefit from use of trademark 'SASKEN', owned by the Appellant. c. Not performing any Functional Analysis of brand usage by AE. d. Not appreciating that work in the service industry depends of the competency and not on brand alone. e. Inappropriately concluding that the AE's have no identity or competitive value without the support of brand 'SASKEN'. f. Not quantifying the financial benefit, if any, derived by the AE's by use of trademark SASKEN'; g Determining, without basis, ALP of royalty 2% of the external turnover of the AEs without appreciating the facts and circumstances of the case; and h. Even otherwise, the royalty rate adopted is excessive. 5. Assuming without admitting that the royalty is to be received from AEs for using trademark 'SASKEN', the lower authorities have erred in computing the ALP without adopting any method or uncontrolled comparable data. 6. Assuming without admitting that the adjustment is to be made, not allowing the benefit of the +1-3% range prescribed in the proviso to section 92C(2). Ground Relating To Invoicing And Collection Services Provided:- 7. The lower authorities have erred in: a. Making TP adjustment of Rs.9,92,815/- in respect of Invoicing and Collection services provided by the Appellant to the AE;

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b. Not appreciating that the Appellant has merely rendered invoicing and collection service to the AE and 0.5% of revenue was fair remuneration for its function; c. Concluding that the Appellant has contributed intangibles like quality standards like ISO certification etc. which is incorrect in the facts and circumstances of the case; and d. concluding that owing to the intangibles held by the Appellant, the contract of licensing was procured 8. The lower authorities have erred in: a. Concluding that Profit Split Method is the most appropriate method to benchmark the transaction without appreciating the facts and circumstances applicable to the Appellant, profit split method cannot be selected as the most appropriate method; b. Computing arm's length price of invoicing and collection services at 25% without selecting any comparables. Even otherwise such rate is excessive; and c. Applying arm's length price of 25% on revenue without appreciating that under PSM, profits not revenue have to be split in relative contribution. 9. Assuming without admitting that the adjustment is to be made, not allowing the benefit of the +1-3% range prescribed in the proviso to section 92C(2). Grounds Relating To Computation Of Deduction Under Section 10AA:- 10. The lower authorities have erred in: a. Calculating deduction under section 1 OAA on combined basis for all the eligible units rather than computing deduction each undertaking wise. b. Excluding Rs.1,10,88,43,931 being communication expenses, travel, insurance, professional charged, software expenses, expenses at branch office and other expenses from export turnover without appreciating that the Appellant had already reduced Rs.1,59,19,069/- from export turnover in the computation of 1OAA deduction which were attributable to eligible units. c. Not reducing Rs.1,59,19,069/- from total turnover while computing deduction under section 10AA. d. Excluding insurance charges of Rs.1,24,44,000/- and communication charges of Rs.2,94,07,000/- from export turnover of SEZ units without appreciating the fact that the aforesaid expenditure were not incurred for the purpose of export / delivery of computer software outside India. e. Not appreciating that the insurance expenses of Rs. 1,24,44,000/-, communication expenses of Rs.2,94,07,000/-, travel expense of Rs.7,02,89,000/- , professional charges of Rs.11,08,27,00/-, software expenses of Rs.54,85,000/-, expenses at branch office of Rs.83,91,76,000/- and other expenses of Rs.5,71,35,000/- are incurred

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during the year is at entity level and not incurred for eligible SEZ units only. f. Assuming without admitting that the above foreign currency expenditures are required to be reduced from export turnover of SEZ units, not reducing the aforesaid expenditure from total turnover while computing deduction under section 1 OAA. Ground Relating To Disallowance Of Expenses Under Section 14A:- 11. The lower authorities have erred in making disallowance under section 14A amounting to Rs.15,93,573/- by invoking rule 8D(2)(iii) of the Income Tax Rules, 1962 without demonstrating as to how the claim of the Appellant regarding attribution of expenses relatable to income not chargeable to tax is incorrect. General Grounds Of Objection:- 1. The lover authorities have erred in: a Not giving credit u/s 90/90A in respect of taxes paid outside India amounting to Rs.1,69,72,434/-, while computing the tax payable by the Appellant. b. Not giving MAT credit as per the provisions of section 115JAA. c. Not giving full credit of TDS of Rs.15,45,41,714/-as claimed in the return of income. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law.” Brief facts of the case are as under: 2. The assessee is a company and filed its return of income for year under consideration on 28/11/2012, declaring total income of Rs.47,99,96,320/-. The return was processed under section 143 (1) of the Act, and subsequently, the case was selected for scrutiny. Accordingly, notice under section 143(2) was issued to assessee in response to which representative of assessee appeared before the Ld.AO and called for requisite details. 2.1 The Ld.AO observed that assessee had international transaction with its associated enterprises exceeding Rs.15

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crores and therefore reference was made to the Transfer Pricing officer. 2.2 On receipt of reference under 92CA, the Ld.TPO called upon the assessee to file economic details of international transaction entered into by assessee with its AE is in form 3 CEB. 2.3 The Ld.TPO observed that, following were the international transaction entered into by assessee: Particulars Amount Received Rendering of sales and marketing services 7,791,592 Rendering of Software development services 97,869,088 Receipt of Software development services 24,995,724 Receipt of Sales and marketing services 21,146,671 Receipt of hardware support services 2,160,495 Receipt of Software testing services 40,228,261 Invoicing and collection service 21,568 Total 194,213,399

2.4 During the course of hearing the Ld.TPO observed that assessee has multiple subsidiaries in USA, China, Finland and other countries around the world. It was noted by the Ld.TPO that all these companies use the trademark and name of “Sasken” which was owned by assessee, against which no royalty was paid by the subsidiaries. Ld.TPO, accordingly called upon assessee to establish as to why, royalty is not payable by the subsidiaries to the assessee. The assessee submitted that, no royalty is payable by any AE, even though “Sasken” brand is registered by assessee in India, Russia, USA and host of other

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countries. It was submitted that the brand name of “Sasken” gave a footing to the subsidiary AE’s in an alien market, and gives an identity to these AE’s as software companies. The assessee filed various details in support of its contentions. The Ld.TPO rejected the contentions of assessee as assessee did not furnish any arms length analysis in replies to the queries raised by the Ld.TPO, the Ld.TPO decide the royalty issues on merits. The Ld.TPO determined the royalty payable to assessee at 2% of the total turnover of subsidiary AE’s based on following data:

Subsidiary Sasken SaskenInc Sasken Sasken SNSI Finland China Japan Revenue from 568,576,504 205,164,919 134,012,289 61,682,884 90,603,366 operations Less 11,350,177 3,609,388 6,105,299 27,238,025 40,228,261 Intercompany revenue Revenue from 557,226,327 201,555,531 127,906,986 34,444,859 50,375,105 Entrepreneurial activities

2.5 The Ld.TPO computed proposed adjustment at Rs.1,94,30,176/- being 2% of the total turnover of AE for using “Sasken” brand. 2.6 The next issue that Ld.TPO observed is, assessee was compensated a fee at the rate of 0.5% of the amount collected by assessee from GE Ultrasound, for certain technology that was licensed, belonging to Sasken Inc. The Ld.TPO reasoned that, for transaction between Sasken Inc., and assessee, profit split

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method (PSM) is the most appropriate method, as the contract is coming because of numerous intangibles contributed by assessee as well as Sasken Inc. 2.7 The Ld.TPO concluded that Sasken Inc., owns the main assets being the patents and assessee owns some assets owing to which the contract name. The Ld.TPO gave weightage of 3:1 to Sasken Inc. to assessee, and held that 25% of Rs.40,52,308/- should be retained by assessee. Since the assessee retained only 0.5%, the balance 24.05% of Rs.40,52,308/- was held to be the adjustment proposed. The Ld.TPO thus proposed addition as under: Amount Particulars (Rs.) Royalty from AEs for using trademark 1,94,30,176 Incremental Collection fee to be received from AE's for acting as collection Agent 9,92,815 Total 2,04,22,991

2.8 On receipt of the transfer pricing order, the Ld.AO passed the draft assessment order on 21/12/2016, wherein following disallowances were also made on following corporate tax: • Disallowance under section 14A amounting to Rs.15,93,573/- • Disallowance under section 10AA amounting to Rs.11,05,19,452/- 2.9 Against the draft assessment order, assessee filed objections before DRP. The DRP upheld the addition of royalty at 2% of the

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total turnover of AEs. The DRP also upheld the addition on account of the payment charged by AE to Sasken Inc., towards invoicing and collection from the company in Korea being GE Ultrasound under profit split method and determined 25% of the payment to words royalty. 2.10 The DRP upheld the disallowance made by the Ld.AO under section 10AA of the Act, by observing that the view taken by Hon’ble Karnataka High Court in CIT vs Tata Elxsi Ltd., reported in (2012) 349 ITR 98 has been appealed before Hon’ble Supreme Court and that the issue had to be kept alive. 2.11 The disallowance made under section 14A was also upheld by the DRP. 2.12 Before DRP assessee had also raised one ground in respect of credit in terms of taxes paid outside India which was not considered while computing MAT Credit, as per provisions of section 115 JAA by the Ld.AO. This issue was also rejected by the DRP by holding that, it does not emanate from the return of income and not related to the variations of income proposed by the Ld.AO. 2.13 On receipt of the DRP directions, Ld.AO passed the final assessment order making TP adjustment at Rs.2,04,22,991/-. Aggrieved by the additions made by the Ld.AO, assessee is in appeal before us now. 2.14 The Ld.AR submitted that, Ground 1-3 are general in nature and therefore do not require adjudication.

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• to access the largest player in telecom domain, as Nokia had major market share in handset and enterprise segment and Botnia had good relations with Nokia. • To establish opportunities being a development centre in Finland and to exploit the European markets. 3.4 It is submitted that Sasken Finland (formerly “Botnia”) is an existing company operating in the market and that it had its own customer market share, relationships etc. Sasken Inc USA 4. It is submitted that, it is a wholly owned subsidiary of assessee and has been incorporated as an investment arm of the company to make strategic investment in USA and other overseas market. It has been submitted that in 2009, Sasken Inc, purchased the product portfolio, customer contracts and certain assets from Ingenient Inc, USA. By this acquisition, assessee acquired the niche competency (including IPR’) in the field of customer/automotive electronics and also provided an access to the nascent technology, being rare seat entertainment in the automotive sector. As Ingenient Inc., already had customer base and required sales force in countries like South Korea and Japan, consequent to the acquisition, assessee gained access to the customers in the said region. 4.1 The external revenue comprises of royalty earned from licensing of IPR’s. 4.2 Sasken Network Solutions Inc (U.S.)(SNSI)

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It is submitted that, this company is a subsidiary of Sasken Network Engineering Ltd., and is engaged in the business of erection and installation of network equipment and provision of testing services. As an expansion plan, Sasken Network Engineering Ltd. acquired a company named, Wireless Logic Inc in US, in a similar line of business, in order to gain an entry into the U.S. market space. 4.3 Pursuant to the acquisition, the name was changed to Sasken Network Solution Inc.(hereinafter referred to as SNSI), in order to include the network solutions, being the core competencies of SNSI, it was submitted that, SNSI had customers, contracts, employees etc., of its own and the business came through its proven credibility in the market. 4.4 Sasken Shanghai This company was established in China in January 2006 person went to acquisition of Sasken Finland (formerly known as Botnia). It was submitted that for economic reasons the company moved some of its software and hardware development operations to china, and therefore in order to maintain the existing relationship, the company co-located, and over a period of time Sasken China started entering into other customers in china. 4.5 Sasken Japan This company was established to execute the project on-site procured by a fellow subsidiary that is Sasken Inc and that the entire revenue of Sasken Japan came from the sub contract by Sasken Inc.

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4.6 In the transfer pricing study the organisation structure of assessee is represented as under:

4.7 The Ld.AR submitted that, transfer pricing regulations do not provide any specific guidelines on royalty for use of trademarks or trade names by group companies. Ld.AR relied OECD guidelines-‘Aligning Transfer pricing outcome with value creation’ known as BEPS Action Plan 8-10, wherein, “Payments for use of company name” was referred to. The extract of commentary relied by the Ld.AR placed at page 827 of paper book is reproduced herein under: “B.4.3. Payments for use of the company name “6.81 Questions often arise regarding the arm's length compensation for the use of group names, trade names and similar intangibles. Resolution of such questions should be based on the principles of this Section B and on the commercial and legal factors involved. As a general rule, no payment should be recognised for transfer pricing purposes for simple

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recognition of group membership or the use of the group name merely to reflect the fact of group membership. See paragraph 7.12 6.82 Where one member of the group is the owner of a trademark or other intangible for the group name, and where use of the name provides a financial benefit to members of the group other than the member legally owning such intangible, it is reasonable to conclude that a payment for use would have been made in arm's length transactions. Similarly, such payments may be appropriate where a group member owns goodwill in respect of the business represented by an unregistered trademark, use of that trademark by another party would constitute misrepresentation, and the use of the trademark provides a clear financial benefit to a group member other than that owning the goodwill and unregistered trademark. 6.83 In determining the amount of payment with respect to a group name, it is important to consider the amount of the financial benefit to the user of the name attributable to use of that name, the costs and benefits associated with other alternatives, and the relative contributions to the value of the name made by the legal owner, and the entity using the name in the form of functions performed, assets used and risks assumed. Careful consideration should be given to the functions performed, assets used, and risks assumed by the user of the name in creating or enhancing the value of the name in its jurisdiction. Factors that would be important in a licence of the name to an independent enterprise under comparable circumstances applying the principles of Chapters I - III should be taken into account. 6.84 Where an existing successful business is acquired by another successful business and the acquired business begins to use a name, trademark or other branding indicative of the acquiring business, there should be no automatic assumption that a payment should be made in respect of such use. If there is a reasonable expectation of financial benefit to the acquired company from using the acquiring company's branding, then the amount of any payment should be informed by the level of that anticipated benefit. 6.85 It may also be the case that the acquiring business will the existing position of the acquired business to expand the business of acquirer in the territory of operation of the acquired business by causing the acquired business to use the acquirer's branding. In that case, consideration should be given to whether the acquirer should make a payment to or otherwise compensate the acquired business for the functions performed, risks assumed, and assets used (including its market position) in connection with expanded use of the acquirer's name.”

4.9 The Ld.AR submitted that, no payment could be recognised for transfer pricing purposes, for recognition of group

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membership or the use of group name, to reflect group membership. He submitted that, payment of royalty will only be required if there accrues financial benefit to the group companies on using the trade name of assessee. Further, it was submitted that, in determining the amount of payment with respect to a group name, it is necessary to consider the amount of financial benefit to the user of the name that could be attributed to the use of that name, the cost and the benefits associated with other alternatives and relative contributions to the value of the name made by the legal owner and the entity using the name in the form of functions performed, assets used and risk assumed by the user in its jurisdiction. 4.10 It was thus submitted that when one successful business is acquired by another successful business, awnd the acquired business begins to use a name, trademark or other branding indicator of the acquiring business, there cannot be an automatic assumption that payment should be made in respect of such use. The Ld.AR thus submitted that: • Sasken Inc., was wholly owned subsidiary of assessee incorporated as an investment arm of assessee to make strategic investment in USA and other overseas market. • Sasken Network Solution Inc., was a subsidiary of Sasken Network Engineering Ltd. of assessee, engaged in the business of erection and installation of network equipment and provision of testing services.

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• Sasken Japan was a subsidiary of assessee which was established to execute project on-site purchased by a fellow subsidiary being Sasken Inc. • Sasken Finland(which was earlier known as Botnia higtec Oy), was acquired by Sasken Communication Technology to cater to handset and enterprise technology. • Sasken Shanghai was established in China for the purpose of setting up centre in China percent to acquisition of Sasken Finland, formerly known as Botnia that had established a deep relationship with Nokia (which shifted to china for a better economic reasons). 4.11 He submitted that these companies were already in operation and already had a base revenue. It was submitted that these companies did not derive any commercial success out of using the group’s name during the year under consideration. 4.12 Ld.AR submitted that the subsidiary in Finland established deeper relationship with Nokia, subsequent to Sasken Finland acquisition, and in order to maintain existing relationship, assessee established subsidiary in China. It was submitted that, over a period of time Sasken China started catering to other customers in China and the revenue from other customers was much less than the revenue generated from Nokia. In support he placed reliance on the details given at page 472 of paper book in paragraph 5.22.

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Sasken China (excluding intercompany) INR Revenue from Nokia 10,55,65,034 Revenue from other customers 2.24.29.533 Total 12,79,94,567

4.13 The Ld.AR submitted that, where one member of the group is the owner of a trademark and where use of the name provides a financial benefit to the members of the group other than the member legally owning such intangible, it is reasonable to conclude that payment would have been made at arms length. Thus he submitted that it needs to be evaluated whether the AE’s have derived any financial or commercial benefit out of the brand “SASKEN”. The Ld.AR in support, relied on page 474 of paper book, wherein the computation has been tabulated showing the revenue generated by the subsidiaries of assessee as under: Subsidiary Sasken Finland Sasken Inc Sasken China Sasken Japan SNSI TOTAL Revenue from 56,85,76,504 20,51,64,919 13,40,12,285 6,16,82,884 9,06,03,366 1,06,000,39,958 operations Less: Intercompany 1,13,50,177 36,09,388 61,05,299 2,72,38,025 4,02,28,261 8,85,31,150 revenue Revenue from 55,72,26,327 20,15,55,531 12,79,06,986 3,44,44,859 5,03,75,105 97,15,08,808 external customers Revenue in the year 80,07,42,797 69,69,79,557 10,37,63,220 - - - of acquisition Revenue base for -13,97,53,230 3,44,44,859 5,03,75,105 9,77,92,311 12,79,06,986 31,05,19,261 Royalty Royalty at 2% on the 62,10,385 10,07,502 - 19,55,846 6,88,897 25,58,140

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4.14 On the contrary the Ld.CIT.DR submitted that authorities below were right in determined royalty at 2% of the turnover earned by the subsidiary companies. He submitted that the said royalty has been determined by the Ld. TPO for use of brand value and the benefit that has derived by the subsidiary companies by using the name “Sasken”. He submitted that the revenue has increased upon the use of brand name by the subsidiary companies in the respective jurisdictions. He also submitted that in certain jurisdiction the loss earned by the subsidiary companies reduced. He placed reliance on the observations of Ld.CIT(A). 4.15 We have perused submissions advanced by both sides in the light of records placed before us. 4.16 The AE’s considered in the present facts are admittedly 100% subsidiaries of assessee. These subsidiaries have further acquired other companies to expand the client base and to acquire niche technologies owned by such companies in the respective geographical locations. With specific reference to Sasken Finland OY. Sasken Inc, USA, was set up to make strategic investments in USA and other overseas markets. Admittedly, the Ld. AO recorded that subsidiaries of assessee is working as full-fledged entrepreneurs in USA, Finland and other countries and that Sasken brand is registered by the assessee in India as well as Russia, USA and a host of other countries. The Ld. TPO observed that assessee owns 25 websites with the names “ Sasken” as the domain name.

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4.17 We note that, the Ld.TPO attributed royalty towards the use of brand name, “Sasken”, by the subsidiaries in the respective countries based on a decision by Hon’ble Delhi High Court in case of Sasken Communications Technologies Ltd. vs Anupam Agarwal &Ors. Hon’ble High Court therein found that Sasken brand is proprietorily owned by assessee before us, and that the respondent before Hon’ble Delhi High Court had to pay damages for using the name Sasken, in a company opened by him. 4.18 The ent*ire attribution of royalty is based on the observations of Hon’ble Delhi High Court wherein damages for loss of reputation and goodwill on account of infringement of the assessee’s rights was directed to be payable by one Mr. Anupama Agarwal. We note that the respondent before Hon’ble Delhi High Court was owning a company independently without having any connection with that of assessee based on which, Hon’ble Delhi High Court held that “Sasken” is an inalienable brand of assessee and cannot be used by Anupam Agarwal’s company. The Ld. TPO went on a footing that assessee claimed damages and file suit on multiple issues from third-party for using the same brand name but allowed its own sister concern to use the brand name without paying a penny. He thus computed 2% of the turnover of AEs being royalty payable to the assessee. 4.19 We note that apart from the observations of Hon’ble Delhi High Court in case of a third-party, Ld.TPO do not have any other evidence material on record to establish that assessee transferred any of the assets like technical knowhow and R&D

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owned by it, to the subsidiaries, based on which royalty could be attributed. On one hand the Ld.TPO observes that the subsidiaries are full-fledged entrepreneurs whereas on the other hand he proposes an adjustment for use of trade name and holds that the subsidiaries cannot stand on its own legs without the use of brand name Sasken. In our view assessee cannot blow hot and cold at the same time. 4.20 We note that, in certain cases there has been increase in profits or reduction of loss during the year under consideration vis-a-vis preceding assessment year. But that alone cannot ipso facto lead to the conclusion that the subsidiaries were able to get premium price due to the use of brand name ‘SASKEN’ thereby to pay royalty. We refer to the following extract from OECD BEPS Action Plan 8-10: “7.13 similarly an associated enterprise should not be considered to receive on intragroup services and it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received where an associated enterprise by reason of its affiliation alone has a credit rating higher than it would if it were unaffiliated, but and intragroup services would usually exist is where the higher credit rating were due to a guaranteed by another group member or where the enterprise benefited from deliberate concerted action involving global marketing and public relations campaigns. In this respect passive Association should be distinguished from active promotion of the many groups attributes that positively enhance the profit-making potential of particular member of the group. Each case must be determined according to its own facts and circumstances.”

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4.21. There is nothing on record brought by the authorities below to establish that, use of the name ‘SASKEN’ provided financial benefit to the members of the group other than the member legally owning such intangible as required under BEPS action plan 8-10. 4.22 Brand licensing is when a brand owner licenses the right to their brand assets to a licensee, letting the licensee use their brand for a set period of time, in a set way, within an agreed market. The brand owner and licensee must agree on the terms and scope of the licensing agreement, which is a legal written contract between the two parties. This will outline exactly what brand assets are being licensed, how they can be used, for how long they can be used, in what market they can be used, and what remuneration is required in return. We not that there is nothing brought on record by the revenue to establish that there is transfer of asset or technology by assessee. Provisions of Section 9 reads as under: 9. Income deemed to accrue or arise in India. (1) The following incomes shall be deemed to accrue or arise in India :— …………… (vi) income by way of royalty payable by— (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : ……..

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Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and(v). ……………….. 4.23 Explanation 4 and 5 inserted by the Finance Act, 2012 w.e.f. 1.6.1976 were introduced to the definition of royalty u/s.9(1)(vi) of the Act. Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred. Explanation 5.—For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—

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(a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6.—For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret; 4.24 Therefore, as per the aforesaid provisions, consideration for transfer of rights (including granting of a licence) in respect of a trade mark or similar property or for use of a trademark or transfer of rights (including granting of a licence) in respect of any copyright, literary, artistic or scientific work, falls under the definition of ‘Royalty’ under the IT Act. 4.25 The revenue has not been able to produce any agreement to establish the payment of royalty by the associated enterprises to assessee. It is also not been established that by the use of brand “Sasken” the subsidiary associated enterprises were able to get premium price which could be ultimately translate into profits to pay royalty. 4.26 Admittedly, in the present facts of the case, assessee has registered the trademark at all the jurisdiction where the subsidiaries are located. It is also not brought on record that assessee has incurred any expenditure or contributed any money for establishment of its name in the geographical areas that benefited the associated enterprises. Based on the above, we cannot uhold 2% royalty computed on the turnover of the AE’s by the Ld.AO/TPO.

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4.27 However, we remand this issue back to the Ld.TPO for fresh consideration. The Ld.TPO shall verify all the agreements entered into by assessee with its subsidiaries, to check: • Whether there exist a licensor-licensee relationship between the assessee and each of the associated enterprises. Assessee is directed to file all details before the Ld.TPO to analyse impact of the use of brand “SASKEN” by the subsidiaries on their profits on year to year basis. • The Ld.TPO is directed to verify not just the terms and conditions for use of brand “SASKEN “ by the AE’s, but also the facts and circumstances surrounding the agreement. • The Ld.TPO is to verify if the AE’s acquired any right in the brand “SASKEN” , for the purpose of selling their products, and that whether at any point of time the AE’s were entitled to become the exclusive owner of the technical know how and the trade mark. • Whether there is an active promotion of group’s attributes that positively enhances the profit making potential of a particular member of the group. 4.28 The Ld.TPO while carrying out necessary verification keep in mind the following extract from OECD BEPS Action Plan 8-10: “7.13 Similarly, an associated enterprise should not be considered to receive an intra group service when it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed. For example, no service would be received where an associated enterprise by reason of its affiliation alone has a credit-rating higher than it would if it were unaffiliated, but an intra-group service would usually exist where the higher credit

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rating were due to a guarantee by another group member, or where the enterprise benefitted from deliberate concerted action involving global marketing and public relations campaigns. In this respect, passive association should be distinguished from active promotion of the MNE group's attributes that positively enhances the profit-making potential of particular members of the group. Each case must be determined according to its own facts and circumstances.” 4.29 The Ld.TPO shall carry out necessary verification based on the which it must first be determined whether there is any Royalty that could be attributed. In the event Royalty is to be attributed, proper benchmarking needs to carried out the accordance with section 92CA of the Act, by selecting an authorised method and comparables. We place reliance on para 6.83-6.85 of BEPS action plan reproduced herein above. Needless to say that proper opportunity of being heard must be granted to assessee. Accordingly these grounds raised by assessee stands allowed for statistical purposes. 5. Ground No. 7 It has been submitted that, Sasken Inc. (subsidiary of assessee in USA) acquired the business contacts from Ingenient Technologies Inc in 2009. Sasken Inc. Thus holds 4 different kinds of technical patents which was required by a customer based in Korea being GE Ultrasound Ltd. In this respect, Sasken Inc., and GE Ultrasound Ltd., entered into an agreement dated 30/03/2010, wherein GE Ultrasound was allowed to use the patents acquired by Sasken Inc., for its R&D activities. The said agreement is placed at page 417-432 of paper book. This agreement was valid for a period of 3 years as per clause 13.

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However the time of renewal, GE Ultrasound denied to enter into agreement with Sasken Inc., as per the global vendor guidelines followed by GE Ultrasound, since Sasken Inc. was a company having negative results at the renewal period. In order to save the business opportunity, the management of assessee decided to have a triparte agreement between GE Ultrasound, Sasken Inc., and assessee. This agreement is placed at page 306-311 of paper book. 5.1 The invoices raised by assessee on behalf of Sasken Inc., on GE Ultrasound is placed at page 303-305 of paper book wherein, royalties have been received from GE Ultrasound during the year under consideration towards the use of patents acquired by Sasken Inc. Since assessee was facilitating Sasken Inc., in Invoicing and collection from GE Ultrasound, Sasken Inc. Compensated assessee at 0.5% towards such services rendered. The Ld.TPO applied profit split method as most appropriate method. The Ld. TP after analyzing FAR of both the transactions concluded that Sasken Inc., owns the main asset the patents. It is also observed by the Ld.TPO that assessee also owns asset owing to which the contract came. The Ld.TPO thus deemed it fit to give weightage of 3:1 to Sasken Inc., and assessee. The adjustment proposed to be retained by the assessee was computed at 25% of the invoice amount as against 0.5%. The Ld.TPO thus proposed an adjustment of 9, 92, 815/-.

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5.2 The DRP upheld the observations of Ld.TPO following which the Ld.AO passed the final assessment order confirming the proposed adjustment. 5.3 Aggrieved by the addition, assessee is in appeal before us now. 5.4 The Ld.AR submitted that Sasken is 100% subsidiary of assessee incorporated in USA. Sasken Inc., had acquired business contracts from Ingenient Technologies Inc., in 2009. It has been submitted by the Ld.AR submitted that to save the business opportunity the management of assessee decided to have an agreement between the assessee, GE Ultrasound Ltd. and Sasken Inc., wherein GE Ultrasound Ltd. would continue to use the patents to meet their requirement. It was submitted that in this arrangement the assessee company is not required to do anything as GE Ultrasound is using the patents owned by Sasken Inc. The Ld.AR thus submitted that in this whole business of facilitating the invoice and collection from GE was the only activity carried out by assessee against which Sasken Inc. Compensated assessee at 0.5% towards a collection made from GE. 5.5 On the contrary the Ld.CIT.DR supported the action of authorities below. 5.6 We have perused submissions advanced by both sides in light of records placed before us 5.7 During the financial year 2009-10, Sasken Inc. And GE Ultrasound Ltd. had entered into agreement wherein, GE

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Ultrasound was allowed to use the 4 different technical patents held by Sasken Inc.. However at the time of renewal in the year 2012, GE Ultrasound Ltd. could not continue the agreement with Sasken Inc., as it was having negative results due to the global vendor guidelines followed by GE Ultrasound. 5.8 On a careful perusal of the agreement placed in the paper book refer to herein above by the Ld.AR, we note that there is no document to show the risk assumed or that assessee had anything to do beyond mediating between Sasken Inc., and GE Ultrasound Ltd. We note that the observations of authorities below that the contract is coming because of numerous intangibles and that assessee has contributed to the intangibles along with Sasken Inc., is all assumptions in thin air without any basis. We further note that on these facts, the Ld.TPO used PSM without there being any discussion about the comparables chosen and whether they were acceptable or not to the assessee. Such action by Ld.TPO cannot be approved as it is not in accordance with the Rule 10(1)(d) of Income-tax Rules. We therefore remand this issue back to the Ld.AO/TPO for carrying out the benchmarking of the international transaction between the assessee and Sasken Inc., in accordance with law to determine if the price changed by assessee to be a facilitator is at arms length. Accordingly this ground raised by assessee stands allowed for statistical purposes.

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scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. ” 6.3 Accordingly, we direct the Ld. AO to compute deduction under section 10 AA of the act in accordance with the ratio laid down by Hon’ble Supreme Court in case of Yokogawa India Ltd. (supra). Accordingly this ground raised by assessee stands allowed. 7. Ground No. 11-12 relates to disallowances made under section 14A and MAT credit not granted in respect of taxes paid outside India under section 90/90A of the Act. 7.1 The Ld.AR submitted that, in respect of 14 A calculations adopted by assessee is placed at page 211 of the paper book and the details of investments and subsidiary is placed at page 113 and 142 of paper book. He submitted that assessee has suo moto disallowed sum of Rs.8,59,327/-and the Ld.AO has further disallowed excess of Rs.3,09,513/-. It has been submitted that needs to be verified. 7.2 In respect of MAT credit not granted on taxes paid by assessee under section 90/90A of the Act, also needs to be verified. 7.3 The Ld.CIT.DR did not object for remanding this issue back to the Ld.AO.

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7.4 We note that, the Ld.AO has not considered the submissions of assessee before computing the disallowance in the hands of assessee on these issues alleged. Accordingly we deem it fit and proper to remand this issue back to the Ld.AO. The Ld.AO is directed to verify all the details filed by assessee and to consider the claim in accordance with law. Accordingly these grounds raised by assessee stands allowed for statistical purposes. Order pronounced in the open court on 31st August, 2021

Sd/- Sd/- (B.R BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 31st Aug, 2021. /Vms/

Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order

Assistant Registrar, ITAT, Bangalore

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Date Initial On Dragon 1. Draft dictated on Sr.PS -8-2021 2. Draft placed before Sr.PS author -8-2021 3. Draft proposed & placed JM/AM before the second member -8-2021 4. Draft discussed/approved JM/AM by Second Member. -8-2021 5. Approved Draft comes to Sr.PS/PS the Sr.PS/PS 6. Kept for pronouncement -8-2021 Sr.PS on -8-2021 7. Date of uploading the Sr.PS order on Website -- 8. If not uploaded, furnish Sr.PS the reason -8-2021 9. File sent to the Bench Sr.PS Clerk 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. No 13. Draft dictation sheets are Sr.PS attached