RIn this case, JCB India Ltd. challenged the assessment order for the assessment year 2017–18, where the tax authorities made a transfer pricing adjustment of approximately ₹166 crores to the royalty payments made by the company to its associated enterprises (AEs).
JCB argued that the arm’s length price for royalties should be 4%, in line with a Mutual Agreement Procedure (MAP) settled between Indian and UK tax authorities for previous years. The company further contended that similar royalty arrangements were consistent with those already accepted in earlier years, and that a recently signed Advance Pricing Agreement (APA) for assessment years 2018–19 to 2022–23, which set the royalty rate at 5%, should guide the treatment of the royalty payments in the current year as well.
Decision
The Tribunal noted that while the royalty arrangements with UK AEs were covered under the MAP and APA in other years, the current assessment year (2017–18) was not included. As a result, the Tribunal held that the MAP or APA terms could not automatically apply to royalty payments made to non-UK entities like those in the US and Germany.
Referring to a similar decision for an earlier year, the Tribunal found merit in reassessing the royalty payments independently. Therefore, it remanded the issue back to the tax authorities for fresh determination of the arm’s length price, specifically for the transactions with non-UK AEs, while granting the company the opportunity to present its case again.
All other grounds raised in the appeal became redundant or were dismissed as withdrawn or not pressed.
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