In
case of Textronix India (P) Ltd. [IT Appeal No.1334 of 2010], Bangalore Bench
of Tribunal observed that the resale price method ('RPM') should be considered
as the most appropriate method ('MAM') when
a re-sale takes place without any value addition to a product.
Facts
The material facts with regard to the
aforesaid issue are as follows: The taxpayer is a company which is engaged in
the business of distribution of telecom equipment, logic analysers and other
test and measurement equipments and accessories on behalf of its
Associate Enterprise ('AE'). Besides the above, if a customer in India wants to
purchase the equipment directly from the AE, the taxpayer acts as intermediary
and derives commission income for services rendered. These are the two streams
of revenue which the taxpayer derives from carrying out transactions with its
AE. The taxpayer conducted a transfer pricing study in respect of its trading
activity as well as commission agency activity. For the purposes of
benchmarking, the tax payer selected Transactional Net Margin Method ('TNMM')
as the MAM and computed 8.01% margin of the tested party and 0.94% of the
comparable companies.
On review, the transfer pricing officer ('TPO')
disregarded the approach of the taxpayer and carried out segment analysis
of trading and commission activity with -13.30% loss in trading and 62.84%
profit in commission. In order to benchmark the trading activity, the TPO
computed the mean margin of comparable companies as 3.34% and accordingly
proposed an addition in trading segment.
The case went to DRP wherein the computation carried
out by the transfer pricing officer was upheld.
Observation of the Tribunal
The Bangalore Bench of Tribunal
relied upon the ratio laid down by the Mumbai Bench of the Tribunal in the
case of L'Oreal India Pvt. Ltd. and
observed that the same would be squarely applicable to the facts of the
taxpayer's case, and accordingly, RPM should be considered as the MAM.
Mumbai Bench of the Tribunal in the
case of L'Oreal India Pvt. Ltd. has
taken the view that the RPM would be the most appropriate method for
determining the ALP. The Mumbai Bench of Tribunal, in this regard, has referred
to the OECD guidelines wherein a view has been expressed that RPM would be the
best method when a re-sale takes place without any value addition to a product.
In the present case, the assessee buys products from the AE and sells it
without any value addition to the Indian customers.
Trust you would find the same useful.
Best Regards
CA Gaurav Garg
JGarg Economic Advisors
+91 9899994934
gaurav@jgarg.com
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