CA Suraj R. Agrawal
Brief of the Case:-
The assessee did not benchmark the royalty payment separately. On enquiry by the TPO, it relied on RBI approval given in 1995 and also on the fact that the assessee earned a gross profit of 41.6%. TPO applied Press Note 9 (2000 series) and restricted it to 1% on the plea that the payment was for use of trademark without transfer of technology.
Case Summary:-
Facts of the case:
- The assessee-company is engaged in the business of manufacture and sale of shore care, household care and personal care products.
- Before the TPO, the appellant has taken the rate of royalty approved by the department of Industrial Policy and Promotion (DIPP) and its consequent approval by the RBI as a benchmark and had contended that its transaction relating to the payment of royalty is at arm’s length.
- However, the TPO relying on the press note 9(2000 series) dated 08.9.2000, restricted the royalty payment to 1% of domestic sale towards the use of trademark without transfer of technology.
- On the assessee’s plea that the approval given to it by the DIPP / RBI should be taken as the benchmark, he held that the rate of royalty approved by DIPP is towards collaboration/ manufacturing/technical knowhow agreement towards which the RBI permitted royalty @ 5% of net sales on domestic sales and 8% on netsales on export sales under automatic route and hence those approvals cannot be considered as a benchmark towards royalty for the use of trademark/brand.
- In the facts and circumstances, the Ld. CIT(A) considered that the prevailing rate of royalty for use of brand or trade mark would be the rate prescribed by the RBI in their press note No 9(2000 series) dated 08.9.2000 and accordingly upheld the action of the AO/ TPO.
Contentions of Appellant:
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