method for determining the arm's length price.
84. OFCD guidelines for profits spilt method (PSM) states as under:-
C. Transactional profit split method ... split the combined profits.
C.2 Strengths and weaknesses
2.109 The main strength of the transactional profit split method is that it can
offer
case of
indenting the CUP method was the most appropriate method,
therein adopted the Profit Split Method ('PSM') as the most
appropriate ... split the profit on 50:50 basis taking GP/Cost ratio of
21.28%, therein directed the TPO to modify his order and
split the profit
prescribe, namely:
(i). Comparable Uncontrolled Price method;
(ii). Resale Price Method;
(iii).Cost Plus Method;
(iv). Profit Split Method;
(v). Transactional Net Margin Method ... appropriate method, the TPO therefore
deliberated on Rule 10B(1)(e) which prescribed the methodology for
determining the ALP as per the said method
Transactions! Net
Margin Method. Therefore, this method has not been used to
benchmark the services rendered by SEMCl.
Profit Split Method
In general, the Profit ... each controlled taxpayer's contribution to that combined
profit or loss. The profit split methods typically are applied where
6006 & 6751/Del./2014
method is not acceptable to TPO , he could
have modified it to Profit S plit method to compute ALP but
outright rejection of the method ... only profit split
method is acceptable to compute the ALP . It was submitted that
there is no such Revenue Split method as adopted
approach indicated in the show cause notice and
decided to use Profit Split Method (in short "PSM") in the end. The
TPO concludes ... follows :
1. This is not a fit case for using Profit Split Method as the most
appropriate method since there is neither transfer of
intangibles
made:-
(i) By applying Transactional Net Margin Method and rejecting Comparable
Uncontrolled Price method or Profit Split Method for determining the
amount of profit ... made:-
(i) By applying Transactional Net Margin Method and rejecting
Comparable Uncontrolled Price method or Profit Split Method for
determining the amount of profit
Method, i.e. Comparable
Uncontrolled Price Method, RP Method, i.e. Resale Price Method and CP Method, i.e.
Cost Plus Method can be applied ... transactions. Profits Split Method and TNM Method grouped as 'transactional profit
methods', can be equally effective and reliable when applied to closely linked
similar to
what it had with M/s.Northstar and Apotex. Profit splitting with M/s.
Par Pharmaceuticals was in the ratio ... Income Tax Rules,
1962.
''d) profit split method, which may be applicable mainly in
international transactions involving transfer of unique
intangibles
transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class ... prescribe, namely.-
(a) comparable uncontrolled price method;
(b) resale price method
(c) cost plus method;
(d) profit split method;
(e) transactional net margin method
