The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the Transfer Pricing (TP) adjustment by the Transfer Pricing Officer (TPO) towards the payment of royalty on technology paid to the Cadbury Adams USA LLC, and Cadbury Enterprises Pte Ltd.
The assessee Mondelez India Foods Private Ltd (formerly known as Cadbury India Limited) was a subsidiary of Cadbury Overseas Ltd UK which holds 58.63% and Cadbury Mauritius Ltd which holds 38.97% of the equity shareholding while the balance 2.41% equity shareholding was held by Indian public company comprising of various shareholders. The assessee was incorporated in the year 1948 as Cadbury Fry (India) Private Limited. The assessee was in the business of manufacturing and marketing of malted food drinks, cake, powder chocolates, toffees, drinking chocolate and sugar confectionery.
During the year under consideration, the assessee has paid a royalty of Rs.1.77 crores to Cadbury Adams LLP, USA for the use of trademark related to Halls Brand and other licensed products. The assessee had entered into an agreement with Cadbury Adams LLC, USA dated 01/06/2006 for payment of royalty at 2.7% of the relevant sales. Further, the assessee had entered into a deed of amendment dated 24/12/2007 whereby the original deed entered by the assessee for payment of royalty at 2.7% was sought to be amended to incorporate
the technical know-how technology also.
The TPO noticed that Cadbury Adams LLC, USA was only a special licensor of the trademark of Halls and what it owned was only the trademark and not the technical know-how and technology in the licensed product. Accordingly, the TPO was of the view that the rate agreed between the parties was excess and that the royalty for trademark at a rate of more than 1% cannot be allowed.
The TPO also relied on its own order for A.Y. 2010- 11 where it allowed only 1% towards royalty on trademarks. Accordingly, the TPO made an adjustment towards TP adjustment. The DRP upheld the disallowance. The TPO also made similar adjustments towards royalty paid to Cadbury Enterprise Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (now merged with Cadbury Enterprises Pte Ltd).
J.D. Mistri, on behalf of the assessee submitted that the agreements for payment of royalty for use of trademark had been entered into in the years 2005, 2006 & 2007 with the above entities and the issue of TP adjustment towards payment of royalty was arising in assessee’s case from A.Y. 2006-07. He also submitted that the coordinate bench of the Tribunal had been consistently holding the issue in favour of the assessee. Uodol Raj Singh, who appeared on behalf of the revenue, relied on the order of the lower authority.
The two-member Bench of Vikas Awasthy (Judicial Member) and Padmavathy S. (Accountant Member) observed that the co-ordinate bench in assessee’s own case for A.Y. 2009-10 (supra) had considered the issue of payment of royalty on technology to Cadbury Adams USA LLC, to Cadbury Enterprises Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (now merged with Cadbury Enterprises Pte Ltd).
The Bench held that the payment of royalty to Cadbury Adams USA (CAUSA) was at arm‟s length holding that the royalty payment on trademark usage was within the arms‟ length and did not call for any adjustment.
The Bench further noticed that the payment of royalty towards trademark for the year under consideration was based on the same agreement, which was considered by the co-ordinate bench for the assessment year 2009-10 and directed delete the TP adjustment made by the TPO towards payment of royalty on technology paid to Cadbury Adams USA LLC, and Cadbury Enterprises Pte Ltd.
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