The issue before the
Delhi ITAT was as under:
Whether rate of
Royalty/FTS approved by RBI is always at ALP?
The Delhi ITAT held as
under:
1) The jurisdictional High
Court in case of CIT v. Nestle India Ltd. [2011] 11 taxmann.com 106 made
following observation:
‘The Tribunal is not
correct in observing that since the permission is given by the RBI, the
reasonableness and genuineness of the expenditure could not have been gone into
by the AO. The purpose for which such permission is given by the RBI is totally
di erent. The RBI is only concerned with the foreign exchange and, therefore,
would look into the matter from that point of view. The RBI, at the time of
giving such permission would not keep in mind the provisions of the IT Act and
that is the function of the IT authorities and, therefore, they can validly go
into such an issue'
2) It is explicitly clear from
the enunciation of law by the Delhi High Court that the grant of permission by
the RBI to payment of royalty is not sacrosanct for the purposes of the Act
and, can be examined by the Assessing O icer to ascertain its excessiveness.
3) The RBI provides for maximum
permissible rate of royalty, etc., which can be paid. Such rate of royalty as
permitted is applicable to all the manufacturing activities across the board
with a few exceptions. Thus, at best, the rate of royalty approved by the RBI
has a persuasive value in the process of determination of ALP but it could not
be considered as conclusive. Therefore, it could not be accepted that the
payment of royalty and fees for technical services at ALP
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