Simi Techno Ltd. (STL) is an Indian company, having its head office in Mumbai. For the P.Y. 2024-25, it furnished the following information of certain entities and the transactions undertaken with these companies : Johns

Any income arising from an international transaction, between two or more "associated enterprises", shall be computed having regard to arm's length price as per the provisions of Chapter X of the Income tax Act, 1961. Section 92A defines an "associated enterprise" and sub-section (2) of this section provides the situations when the two enterprises shall be deemed to be associated enterprises. Transaction with Johns Inc. Johns Inc. is a wholly owned subsidiary of STL and is a non-resident company. Hence, it is an associated enterprise. Royalty falls within the meaning of international transaction, since it is payment for supply of know-how, being an intangible property. Johns Inc. is currently paying a royalty of USD 4 million per annum to STL for supply of know-how. For similar supply of know how to Byte LLC., a wholly owned Government Company in USA, STL receives annual royalty of USD 5 million. Therefore, transfer pricing provisions will be applicable as under: Under CUP Method, ALP has to be taken as USD 5 million. Understatement of royalty is 1 million USD, i.e., 1 Million USD x ₹83 = ₹830 lakhs or 8.3 crore. Therefore, ₹830 lakhs is to be added to the existing total income of Indian Entity STL. Transaction with Perfect Work Ltd. (PWL) In PWL, STL holds 26/108 i.e., 24.074% of the voting power. Since STL holds less than 26% of the voting power, PWL is not an associated enterprise. Hence, the transfer pricing provisions would not be applicable on sales made by STL to PWL.