Case Law Details
Brief of the Case
Delhi High Court held In the case of Johnson Matthey India Pvt. Ltd. vs. DCIT that the purpose of transfer pricing is to benchmark transactions between related parties in order to discover the true price if such entities were unrelated. If Maruti Udyog Ltd. (MUL) had bought the goods directly from party named JMUK there would have been no application of transfer pricing since MUL and JMUK are unrelated entities. MUL would have purchased the goods just like JMIPL did on negotiated prices. There is merit in the contention that the prices at which JMIPL purchased PGM from JMUK were already at arm‟s length and that it was for administrative convenience that MUL had outsourced this function to JMIPL.
The fact that JMIPL is paid a fixed manufacturing charge per unit shows that costs associated with the possible fluctuations in the price of the raw material is passed on to the customers and does not affect the profits of JMIPL.
Facts of the Case
The assessee (JMIPL) is engaged in the business of manufacture and sale of automobile exhaust catalysts. 90% of the shares of the Assessee Company are held by Johnson Matthey Plc. UK (JMUK) through Matthey Finance, BV, Netherlands. JMIPL’s manufacturing unit is located at IMT, Manesar in Haryana. Maruti Udyog Limited (MUL) is a major customer of JMIPL accounting for most of its sales.
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