Profitability if considered without considering the positive deviations would lead to impossible profitability positions, which is not what is contemplated under the provisions of 92C. In the circumstances, the Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP, if any.
Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied. This aspect has not been dealt with by the authorities below. We are, therefore, of the opinion that this issue requires a fresh look by the A.O.
Here, the payments made by the assessee were to non-residents Indian who were working abroad. Assessee had made no deduction of tax at source whatsoever. As per the assessee, they were working for its business carried on in Nigeria and hence, by virtue of Section 9(1)(vii)(b) of the Act, the fees payable to such non-residents could not be considered as income accruing or arising to them in India.
In the instant case, the claim of the CIT is that the assessee is the owner of house properties situated at Trichy and Bangalroe and therefore, the said decision is not squarely applicable to the facts of the case. In our considered view, if the house properties situated at Trichy and Bangalore are owned by the assessee’s wife then the same cannot be considered as owned by the assessee for disallowing exemption u/s 54F of the Act.
Assessee here, in our opinion, did fall within the concept of rendering a formal education and could not be equated with a coaching institute. We are, therefore, of the opinion that assessee could not have been denied the eligible exemption under Sections 11 and 12 of the Act for a reason that it was not doing charitable activity as defined under Section 2(15) of the Act.
In the instant case, the liability to pay commission Rs. 2,94,701/- has arisen by virtue of sales in the financial year 2004-05 relevant to the assessment year 2005-06. The realization of sale amount in the next financial year will not make much difference as the liability to pay commission had crystallized in the financial year 2004-05 itself after sale. We, therefore, reverse the decision of the CIT(A) on this issue and allow the ground raised by the assessee.
The assessee has made an attempt to suppress the true colour of the payment towards the goodwill by stating that payments were made towards non compete fee, IPR on brand/brand value, etc. In fact the assessee as well as its sister concern M/s. Pentafour Technologies Limited do have a common CEO and the companies are working under a common management. There is interlacing of activities and interlocking of funds.
Apart from arguing that the payments were in the nature of reimbursement of expenses, the assessee has not explained anything about the pricing of the services, for which the so-called reimbursements were made by the Indian subsidiary to the assessee company. It is the case of the assessee that expenses were reimbursed by the Indian subsidiary at par with the invoices issued by third parties.
A reading of the DRP Proceeding Extracts shows that the DRP has not considered any of the objections raised by the assessee in respect of TP matters. They held that the appeal filed by the assessee on some issues are pending before the Commissioner of Income-tax (Appeals) pertaining to the assessment year 2004-05 and, therefore, the issues have not reached finality and for that reason the contentions raised by the assessee for the impugned assessment year 2006-07 are liable to be rejected.
The Chennai Tribunal in the case of Quintegra Solutions Pvt. Ltd., had considered the applicability of Section 28(iv) of the Act in the case of amalgamation. In that case the CIT(A) held that differential amount between share issued and net assets taken over, being balancing figure, did not represent income assessable under Section 28(iv) of the Act. The view of CIT(A) had been upheld by the Tribunal.
