Sapient Corporation Pvt Ltd vs. DCIT (ITAT Delhi) – When loss making companies have been taken out from the list of comparables by the TPO, Zenith Infotech Ltd. which showed super profits should also be excluded. The fact that assessee has himself included in the list of comparables, initially cannot act of estoppel particularly in light of the fact that the AO had only chosen the companies which are showing profits and had rejected the other companies which showed loss (Quark System vs. DCIT 38 SOT 307 (SB) followed).
ACIT vs. Clough Engineering Ltd (ITAT Delhi – Special Bench)- Under Article 11(4) of the DTAA, interest from indebtedness “effectively connected” with a PE of the recipient is taxable under Article 7 and not under Article 11. Though the interest was connected with the PE in the sense that it has arisen on account of TDS from the receipts of the PE, it was not “effectively connected” with the PE either on the basis of asset-test or activity-test. The payment of tax was the responsibility of the foreign company and the fact that it was discharged by way of TDS did not establish effective connection of the indebtedness with the PE. In order to be “effectively connected”, it is not necessary that the interest income has to be necessarily business income in nature. Even interest assessable under “other sources” can qualify.
Bidhi Chand Singhal vs. ITO (ITAT Delhi)- In our opinion, in the absence of definition of “eco-tourism” the hotel as added into the Item No.15 of Part C is to be construed to be hotel situated in the State of Himachal Pradesh or the State of Uttaranchal having a valid licence on the basis of No Objection from Pollution Department which can be treated to be a hotel eligible for deduction u/s 80IC as per provisions of Section 80IC. Therefore, we allow the claim of deduction u/s 80-IC to the assessee and the appeal of the assessee is allowed.
The Delhi bench of the Income-tax Appellate Tribunal [“The Tribunal”] recently pronounced its ruling in the case of Clear Plus India Private Limited v. DCIT [ITA NO. 3944/DEL/2010], wherein it upheld the transfer pricing methodology adopted by the taxpayer to benchmark its export sale by the application of internal comparable uncontrolled price [“CUP”] method, adopting its associated enterprise [“AE”] as the tested party. The revenue’s contention to use Transactional Net Margin Method [“TNMM”] was rejected as in view of the Tribunal minor aberrations in the application of CUP method do not warrant its abandonment.
Income Tax Appellate Tribunal (“The Tribunal”), Delhi Bench recently pronounced its ruling in the case of ACIT v. M/s NIT Limited (Appeal no. -2011-TII-1 6-I TA T-DEL-TP or ITA No.1844 & 1871/Del./2009) on various transfer pricing issues. The most important issue dealt by the Tribunal was in respect of details submitted before the Tribunal that were not available in the public domain at the time of assessment and first appellate proceedings. The Tribunal held that since these documents were essential for determining arm’s length price of the relevant international transactions, the same need to be admitted for consideration.
Marubeni India Pvt. Ltd. v ACIT (I.T.A. No.919/Del/2009) (ITAT Delhi)- Interest income is to be excluded from operating revenue for computing the net profit from operating activity unless such interest income has nexus with the international transaction. Under the captive service and cost plus model, if an expense has a direct link with the international transaction, the same should form part of total cost i.e. operating costs. The onus is on the taxpayer to maintain robust documentation for availing necessary economic and risk adjustments. The option of +/- 5 % is available only to the taxpayer when he is computing the ALP and not when the AO/TPO is computing the ALP
Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Intelsat Corporation (ITA No. 5443/D/2010) (Judgment Date: 4 March 2011, Assessment Year: 2007-08) held that income received by the non-resident taxpayer from leasing of transponder capacity and bandwidth cannot be taxed as ‘royalty’ under the provisions of Income-tax Act, 1961 (the Act).
Non-referred international transactions fall outside the TPO’s jurisdiction . The Delhi Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of M/s. Amadeus India Pvt Ltd v. ACIT, Range-I, New Delhi (ITA No. 5203/Del/2010) held that the role of Transfer Pricing Officer (TPO) is limited to the determination of arm’s length price in relation to the international transaction(s) referred to him by the Assessing Officer (AO). The TPO, suo motto, cannot take cognizance of any other international transaction not referred to him by the TPO.
Income Tax Appellate Tribunal (“The Tribunal”), Delhi Bench recently pronounced its ruling in the case of M/s Aricent Technologies (Holding) Limited v. DCIT (Appeal no. ITA No. 4699 /Del. /2010) for AY 2006-07, on the amount paid as incentive to employees of the Taxpayer by its parent company pursuant to transaction of takeover for the employees’ retention. The Tribunal held in favor of the Taxpayer observing that transaction does not have any element of income for the purpose of making an adjustment to the price of the said international transaction and is merely in the nature of reimbursement of incentive paid by Taxpayer to its employees.
The Delhi bench of the Income Tax Appellate Tribunal (Tribunal) recently pronounced its ruling in the case of Birlasoft (India) Ltd. v. Dy. CIT ITA NO. 3839/DEL/2010, where the Taxpayer had determined the arm’s length price of their international transactions on the basis of internal benchmarking analysis. The Tribunal upheld the transfer pricing method followed by the Taxpayer whereby the net cost plus margin earned from rendering software development and related services (“software services”) to associated enterprises (AEs) were compared with the operating profit margin earned from rendering software services to unrelated parties.
