Any Other Method – Is it available only if none of the prescribed methods are applicable?
Indian High Court in a recent decision1 has laid down important principles with regard to selection and application of the most appropriate method for computation of arm’s length price under transfer pricing law of India. BACKGROUND The Indian subsidiary was providing marketing support services to its group companies against receipt of commission at a fixed rate. The consideration received by the Indian subsidiary was benchmarked applying TNMM as the most appropriate method, using Operating Profit / Value Added Expenses (‘OP / VAE’) as the indicator for 2 comparison. The tax officer, however, applied ‘Any Other Method’ for benchmarking the transaction, wherein, he came up with 7 uncontrolled commission agreements and held that the rate at which commission is charged by Indian subsidiary is less than arm’s length rate of commission. The tax officer, accordingly, computed the shortfall / deficit of commission earned by the Indian subsidiary and added in its income. The ‘any other method’ is the sixth method introduced by the Government of India to relax the provision of CUP method which requires actual transactions for comparison; and to consider hypothetical price which would have been charged under comparable uncontrolled conditions as the arm’s length price. The ITAT 3
