Indian ITAT ruling helps justify royalty payments by manufacturers to group companies
22 November 2012
A recent ruling by India’s Income Tax Appellate Tribunal (ITAT) Mumbai bench should help to justify the payment of royalty by entities undertaking contract manufacturing, toll manufacturing or fully-fledged manufacturing for their group companies.
In the case of SC Enviro Agro India v DCIT
the tribunal held that it is not the role of a
transfer pricing officer (TPO) to assess whether a technology
royalty was payable as a legitimate business purpose. The
tribunal said the TPO’s role is to analyse only
whether the payment was made at an arm’s-length
price, and it is for the assessing officer (AO) to determine
whether or not the royalty should have been paid.
SC Enviro Agro case
SC Enviro Agro (Enviro Agro) entered
into a technical licence agreement with Sumitomo Chemical
Company (SCC) which allowed it to produce certain chemical
products commercially as part of its insecticide and pesticide
The agreement entailed that Enviro Agro only sold its
products to companies approved by SCC.
It also purchased any intermediate ingredients only from
The company to which most of Enviro Agro’s
This article is locked content, available to current subscribers or trialists.
- Current subscribers or trialists - Please log in to view this article in full.
- New users - Please take a free 7 day trial.
- Expired subscribers or trialists - Please subscribe to gain immediate full access.
If you think you've received this message in error, please contact your account manager, Nick Burroughs:
Email: email@example.com, Tel: +44 (0)207 779 8379
Subscribe today to gain full access to International Tax Review.
Take a free trial now and gain 7 days of full access to International Tax Review.