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Recently, the Mumbai bench of Income-tax Appellate Tribunal (the Tribunal) in the case of Arif Akhatar Husssain (ITA No. 541/Mum/2010) held that the provisions of Section 50C of the Income-tax Act, 1961 (the Act) is applicable to the capital gains arising on transfer of Development Rights by the taxpayer.
The Mumbai bench of the Income Tax Appellate Tribunal (“ITAT”) recently pronounced its ruling in the case of M/s Nimbus Communications Limited vs. ACIT Circle 11(1), Mumbai for Assessment Year 2004-05, ITA No. 659 7/Mum/09 , on transfer pricing issues arising from amount overdue to the Taxpayer from its associate enterprise (“AE”). The tribunal held in favour of the Taxpayer observing that if a commercial transaction was at arms? length, no transfer pricing addition for non-charging of interest on overdue debt was warranted.
During the assessment year 2005-06, the Taxpayer sold fabrics worth INR 66,101,237 to its associated enterprise, M/s Spin International Inc., incorporated in the U.S., and relied on the Comparable Uncontrolled Price Method (“CUP Method”) to justify the arm’s length nature of such transaction. Upon examination of the Form 3CEB submitted by the Taxpayer, the Assessing Office (“AO”) found that in respect of two qualities of materials, the items were sold to the associated enterprise at much lower price compared to the price charged in comparable uncontrolled transactions entered into by the Taxpayer.
The Mumbai bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of Monsanto Holdings Private Limited vs. Dy. Commissioner of Income Tax Range – 8(2) (Mumbai Bench), ITA No: 9130/Ml/2010 , on transfer pricing issues arising from international transactions entered by the Taxpayer with its Associated enterprises (AEs). The Tribunal ruled in favour of the Revenue stating that Resale Price Method (RPM) cannot be applied based on expected gross margin. Application of RPM is required to be based on examination of audited accounts and consequent computation of actual profit margin.
TPO cannot reject TP method adopted by assessee on the ground that the comparables are wrongly chosen. Further the ALP has to be determined with respect to an international transaction and not at an entity level.
Brief:- The DRP, being an authority created under a statute and conferred with the powers, has the obligation to act as a body living to the expectations which the law mandates. The DRP has to afford adequate opportunity for personal hearing and deal with the issues urged by a speaking order which would reflect cogent reasons. This is apt to say so that no assessee can have any kind of apprehension that the approach to the DRP is perfunctory.
Brief: High Court held that It is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realization but would reflect unsound principles of management. The assumption that for exemption there should not be any surplus and if it is otherwise the institution society exists for profit and not charity is not justified.
When there is no specific provision in the Income Tax Act for protective assessment, power lies with the AO to make such an assessment on protective basis under certain circumstances. When there is such a power to make the protective assessment while carrying out the normal assessment proceedings even in the absence of specific provision, we fail to understand how the absence of provision should be a ground to preclude the AO for making protective assessment in block assessment proceedings under Section 158BC/BD of the Act. Principle of law laid down by the Supreme Court holding that the AO has power to make protective assessment even when there is no specific provision under the Act would equally apply to the block assessment also.
The above decision presupposes that salary would be taxable if the accrual of income is in India. However, in India, salary income has been taxed either if it accrued or was received in India. Being a Tribunal decision, this it would be binding in the jurisdictional location though it is to be seen whether the principles laid therein will be endorsed by the courts to have a wider impact.
As the department had examined the fundamental nature of the transaction in the earlier years and its nature remained unchanged, the department could not have changed its view as regards the nature of the transaction by dubbing it as erroneous.
