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.
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.
In the earlier part of Sec.72(1) the expression used is “under the head “Income from business and profession”, while in clause (i) of Sec.72(1) the expression used is “the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year. Though for the purpose of computation of the income, dividend is classified as “Income from other Sources”, income by way of Dividend was very much part of the income from business, because the shares on which dividend income was earned was stock in trade of business of trading in shares carried on by the Assessee and they formed part of the trading assets.
The Hyderabad bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of ADP Private Limited v. Dy. Commissioner of Income Tax (Hyderabad Bench), ITA No: 155/Hyd/2009 , on transfer pricing issues arising from provision of software services by the Taxpayer to its Associated enterprise (AE). The Tribunal ruled in favour of the Revenue upholding the adjustment proposed by the Transfer Pricing Officer (TPO).
Delhi Tribunal Ruling –- the Transfer Pricing Officer (TPO) cannot determine the arm’s length price of an international transaction, which has not been referred to him by the Assessing Officer. When brand name is owned by the Associated Enterprise (AE) and the assessee incurs more than normal expenses on advertisement, marketing and promotion (AMP), the TPO cannot make adjustments considering that the AE did not reimburse the assessee for excess AMP expenses. [Amadeus India Pvt Ltd v. ACIT (2011-TII-22-ITAT¬DEL-TP)]
Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Whirlpool India Holdings Ltd. v. DDIT [201 1-TII-15-ITAT-DEL-INTL] held that Branch Office set up in India which merely remunerated employees seconded by US group company does not constitute a Permanent Establishment (PE) in accordance with Article 5 of India- USA tax treaty (the tax treaty) and therefore was not taxable in India.
When transactions with a particular party are over that party may not be ready to co-operate in giving information which are exactly asked by the Assessing Officer from the assessee, under these circumstances, the revenue authorities have ample powers under the Act to issue summons to the party and if they are not exercising such powers, the assessee cannot be blamed for concealing particulars and or furnishing inaccurate particulars of income.
DDIT(E)-II Vs. M/s. Rock Church Ministries (ITAT Hyderabad ) The purpose of section 13(1)(c) is to deprive a religious or charitable trust from exemption if it is found that its income is used or applied, directly or indirectly, for the benefit of the specified persons. Section 13(1)(c) carves out a general exception wherein the provisions of sections 11 and 12 will not operate on account of user or application of any income of the trust for any direct or indirect benefit of the any specified persons. It is an undisputed fact that the rent paid of Rs. 9,500 is not excessive even as per the old provisions of municipal. The assessee paid the rent as per the old municipal taxes. The present rental value would be much more than the rent paid by the assessee for the property having a building of 4000 sq. Ft. on a land admeasuring 15,000 sq. ft. that too in a prime locality in the city of Hyderabad. The market rent i.e., Rs. 80,000 per month as estimated by the Government Valuer is much more to the rent paid by the assessee. The Assessing Officer could not establish that the rent paid by the assessee is excessive and the rental value estimated by the Government valuer is incorrect. The contention of the Revenue that there is variation in the name in the municipal records and I.T. records is also baseless as the name in the municipal records is in abbreviated form.
