No separate benchmarking of Royalty transaction when the transaction has also been benchmarked by applying TNMM at the entity level: Bengaluru High Court

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In a latest transfer pricing judgment, Bengaluru high court in the case of M/s Kaypee Electronics & Associates Pvt. Ltd held that no separate benchmarking of royalty required if the same has been benchmarked by applying entity level TNMM.

Brief facts of the case: 

Assessee made payment of royalty to its holding company for using the technology and know how of its holding company while manufacturing its products and benchmark the same along with other International transactions by applying entity level TNMM. TPO raised question only with respect to the ALP of royalty payment and determined the ALP of royalty separately and made addition with respect to the same. DRP also affirmed the addition made by TPO.

Observation of the ITAT:

ITAT dismissed the appeal of the Assessee and rejected its contention that when entity level TNMM has been applied, there is no necessary for separate benchmarking for royalty.

High Court Observation:

Hon’ble high court held in favour of the assessee holding that case was squarely covered by the ruling of Hon’ble Delhi High Court in the case of Sony Erricssion Mobile Communication India Pvt Ltd VS. CIT and the decision of Co-ordinate bench of Tribunal in the case of Siemens VTO Automotive Ltd VS. DCIT wherein it was held that as royalty was included in the operating cost, there was no necessity of separately benchmarking royalty.


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