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27 December 2017

Non-receipt of royalty from overseas subsidiary can be subject to TP adjustment

The petitioner was aggrieved by the addition of royalty income in the year it had ceased to receive royalty from its subsidiary.

The contention of the petitioner was that prior to the overseas entity becoming a subsidiary royalty was payable by the overseas entity for use of brand name and technical knowhow and the income had been duly accounted.

After the overseas entity became a 100% subsidiary, it was used by the assessee to manufacture its products abroad.

The Delhi High Court in case of [Dabur India Ltd v. Pr. CIT, ITA], agreed with the reasoning of the lower authorities that as long as there was no change at the entity level in terms of complete identity between the assessee and the overseas entity, the non-receipt of royalty for use of brand name could be brought under the ambit of international transaction.

 

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