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Assessee was a tax resident of Singapore. The applicant sought a ruling on taxability of subscription fee received from users in India to access the online information database maintained by it. AAR was of the view that the market intelligence services provided by the applicant on online portal was taxable as Royalty as per Clause (iv) of Explanation 2 to Section 9(1) (vi) of the Income Tax Act, 1961 The same was also taxable as Royalty as per Article 12(2) of India -Singapore Double Taxation Avoidance Agreement.
Transfer Pricing Officer recomputed the expenditure relating to reimbursement of business promotion expenses by Assessee to its associated enterprise based in Cyprus. The TPO had compared the said expense with the average of promotional expenditure incurred by 17 pharmaceutical companies, to compute arm’s length price (ALP) using Transaction Net Margin Method (TNMM). The Honourable Mumbai Tribunal held that the TPO had adopted an adhoc method and not TNMM to disallow the said expenses under the guise of Transfer Pricing provisions; hence the addition on account of disallowance was deleted.
In the case of a salaried taxpayer, entire tax liability is discharged by the employer through deduction of tax at source. Complete details of such taxpayers are also reported by the employer through Tax Deduction at Source (TDS) statements. Therefore, in cases where there is no other source of income, filing of a return is a duplication of existing information.
Assessee has invested in purchase of new residential house at Rs. 70,80,620/- within the period of two years in which the transfer took place and therefore, the assessee was eligible for deduction u/s 54F(1) of the Act in respect of the said investment out of this deemed long term capital gains. In our considered opinion, the Assessing Officer was not justified in not granting exemption u/s 54F with reference to this investment made by the assessee in computing long term capital gains of the year under consideration.
It cannot be said that all tax planning is illegal/ illegitimate/impermissible. Applying the rationale of this decision to the case on hand, in the absence of any material to pronounce on the genuineness of the transaction herein, the mere fact that what had been purchased had been leased out to the vendor or that vendor had undertaken to pay the hire charges on behalf of the assessee to the hire purchase company, per se, cannot lead to a conclusion that the transaction is a sham one. In the circumstances, even invoking the decision in McDowell case, we do not find any ground to accept the plea of the Revenue that the claim of the assessee has to be rejected as a sham one.
The taxpayer adjusted the interest expenditure against the interest income earned. After such adjustment no interest expenditure remained to be disallowed. The taxpayer offered expenditure other than interest of Rs. 111,521 for disallowance under Section 14A of the Act on the estimated basis. The Kolkata Tribunal held that there was no interest expenditure remaining after adjusting the interest credited to the Profit and Loss Account. Therefore, no part of interest paid can be disallowed for earning tax free dividend. Further, expenditure other than interest had been offered for disallowance by the taxpayer under Section 14A of the Act. Therefore, no further disallowance shall be made.
The Tribunal dismissed the taxpayer’s proposition that only real income should be taxed and noted that these arguments could not be accepted in the context of Chapter X – Special Provisions relating to Avoidance of Tax, of the Act. In this regard, reliance was placed on the decision of Perot System TSI (India) Limited. The Tribunal observed that RBI’s approval was not sufficient from an Indian transfer pricing perspective as the character and substance of the transaction needs to be judged in order to determine whether the transaction has been done at arm’s length. The Tribunal dismissed the taxpayer’s contention that the loans granted were commercially expedient and economic circumstances did not warrant the charging of interest.
AAR in the case of Dassault (supra) was a case of sale of shrink wrap software and the AAR has held that reproduction and adaptation envisaged by section 14(a)(i) and (vi) can contextually mean only reproduction and adaptation for the purpose of commercial exploitation. The ruling of the AAR in the case of Dassault (supra) was approved by the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB,New Delhi (supra). It can therefore be said that the Hon’ble Delhi High Court has held that consideration paid merely for right to use cannot be held to be royalty. This ratio laid down by the Hon’ble Delhi High Court would also apply when shrink wrap software is sold.
CIT v. Shravanee Constructions (Karnataka High Court) Section 80-IB(10) of the Act is applicable not for merely building housing project but for developing and building housing project. In terms of the agreement, the taxpayer not only undertook the development activities on the land in question, but in fact the taxpayer entered into an agreement of sale with the owners of the land, paid the entire consideration. However, it did not execute a registered sale deed in its name. Thus, the Assessee contributed the land.
Receipt of the impugned amount was on account of part services rendered by the assessee to his previous foreign employer outside India. Under section 5 of the I.T. Act, the total income of any previous year of a person who is a resident includes all incomes from whatever source derived, which is received or deemed to be received in India in such year by or on behalf of such person; or accrues or arises or is deemed to accrue or arise to him in India during such year; or accrues or arises to him outside India during such year.
