ITAT highlights lacuna in Rule 10B; it doesn't mandate and merely provide an option to apply Comparable PSM

Rule 10B(1)(d) of Income-tax Rules provides an option but not a compulsory mandate to apply a comparable Profit Split Method.

The Tribunal held as under:

1)  Comparable Profit Split Method (‘PSM’) is rarely used internationally, in view of lack of reliable external data with respect to third party behavior to split profits;

2)  OECD and UN clearly gives taxpayers an option to adopt any one of the three sub-methods under the overall PSM, namely, contribution PSM, residual P'SM and comparable PSM, without requiring the contribution and residual PSMs to mandatorily pass through the sanity of comparable PSM, being a mandate given under the Indian transfer pricing regulations, in the form of rule 10B(I)(d) of the Income-tax Rules (I-T Rules);

3)  The requirement contained in IT Rules of mandatory adoption of comparable PSM in all cases of PSM is a lacuna, which renders the entire scheme or mechanism of PSM virtually redundant, otiose and impossible to comply with even in the most deserving cases.

4)  Such lacuna is curable through interpreting rule 10B(1)(d) in a manner that the same provides an option and not compulsorily mandate to apply a comparable PSM in a case where reliable external data to gauge third party behavior is impossible to be obtained.- Global One India Ltd. V. ACIT [2014] 44 taxmann.com 100 (Delhi - Trib.)