The TPO’s upward adjustment on interest charged to the assessee’s Bahrain associated enterprise, based on US/European loan data with added risk spreads, was held unsustainable since the Bahrain prime lending rate already reflected regional risk and had been consistently applied; payments for product certification services evaluating software quality were held not to constitute fees for technical services, requiring no TDS given the payees’ absence of a fixed place of business in India; and the provision for royalty expenses was held rightly allowed since royalty became payable only on activation of software by the end-user, so withholding tax liability under section 195 did not arise until then. (AY. 2011-12)
DCIT v. Elitecore Technologies P. Ltd. (now merged with Sterlite Technologies Ltd.) (2025) 132 ITR 740(Ahd) (Trib.)
S. 92C: Transfer pricing-Arm’s length price-Avoidance of tax-International transaction-Specified domestic transaction-Loan to associated enterprise in Bahrain-Benchmarking using US/European data inappropriate-Bahrain Central Bank’s prime lending rate reflects arm’s length rate-Upward adjustment unsustainable-Business expenditure-Disallowance-Payment for product certification services-Not fees for technical services-No tax deductible at source-Disallowance deleted.-Withholding liability arises only when income taxable in recipient’s hands-Royalty payable only on activation by end-user-Provision for royalty rightly allowed. [S.9(1)(vii) 40(a)(ia(195 R.10B]
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