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Income Tax Appellate Tribunal, DELHI BENCH “I-1” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
PER AMIT SHUKLA, J.M.: The aforesaid appeals have been filed by the assessee against the final assessment order dated 29.11.2018 passed in pursuance of directions given by the DRP in order dated 25.09.2018 for the AY 2014-15; and final assessment order dated 28.10.2019 passed in pursuance of DRP directions dated 28.08.2019 for the AY 2015-16. In both the appeals the common issues involved are the transfer pricing adjustment on account of royalty. Since facts in issues are common arising out of identical set off facts, therefore, same were heard together and are being disposed of by way of this consolidated order.
At the outset, Ld. Counsel for the assessee Shri Tarandeep Singh pointed out that the only dispute of TP adjustment is with regard to royalty of payment. The assessee has paid royalty to its AE @ 5%, whereas TPO has allowed royalty @ 2% and thereby making adjustment of Rs. 91,85,00,341/- in AY 2014-15 and Rs. 79,18,90,775/- in the AY 2015-16. He submitted that in MAP proceedings this issue has been settled by the competent authorities of UK and India, wherein it has been mutually agreed that for the AY 2014-15 the ALP of royalty payment would be @ 4% and for the AY 2015-16 it would be 3%.
Ld. DR admitted that this issue now stands covered under the MAP proceedings.
The JCB India is manufacturing of earthmoving and construction equipment and is wholly owned subsidiary of JCB, UK. As per the TP study report AEs are responsible for development and designing of products and up-gradation of existing products. For heavy machines the JCB India entered into an agreement for manufacturing of various machines for which it has paid royalty @ 5%. For AY 2014-15 it has made following payments of royalty to AE:
Products Royalty Amount in INR Heavy Line Machine 289,917,150 Backhoe Loaders -3DX 1,530,833,902 -2DX 34,031,604 Total 1,564,865,506
Further the history of payment of royalty has explained in the following manner:
S.N. Agreement Parties to Product Royalty % Period of dt. the agreement agreement 1. 13/02/1979 Escorts Two wheel 5% 5 yrs from the JCB Ltd., drive commencement India excavator of commercial & JCB, UK loader production 2. 07/07/1983 -do- Hydraulic -do- -do- wheel loader 3. 27/02/1987 -do- Synchromesh -do- -do- gear box with inbuilt forwarding &^ reversing facility [3D technology was introduced in 1986 as stated in pt 4 of letter dated 22/09/2016] 4. 04/03/1992 -do- Telescopic -do- -do- handlers (load all machines) 5. No royalty paid by the assessee from 1997 till 2004 6. 05/03/2004 -do- 3DX -do- Continuing till technology date
The assessee has submitted that for the technology transferred royalty payment has been made to AE. For bench marking the international transaction of payment of royalty the assessee has considered CUP as most appropriate method and had identifying four comparables and ALP of comparables was arrived at 6.3% and hence it was reported that the assessee’s payment of royalty is at arm’s length price. However, the Ld. TPO after detailed discussion held that after comparing various agreements of uncontrolled transaction held that royalty payable by the assessee should be at 2% and, accordingly, has made transfer pricing adjustment.
Now that issue has been settled by the competent authority that UK & India under mutual agreement process (MAP), wherein it has been agreed that payment of royalty for AY 2014-15 should be @ 4% and for AY 2015-16 it should be at 3%. Accordingly, TPO directed to work out the adjustment following the MAP order and determine the arm’s length rate of royalty payable for the AY 2014- 15 @ 4% and for AY 2015-16 @ 3%. Accordingly, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 30th July, 2020. Sd/- Sd/- (O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/07/2020 Kavita Arora, Sr. PS