Budget 2019: Clarification with regard to provisions of secondary adjustment and giving an option to assessee to make one-time payment

In order to align the transfer pricing provisions with international best practices, section 92CE of the Act provides for secondary adjustments in certain cases.

It, inter alia, provides that the assessee shall be required to carry out secondary adjustment where the primary adjustment to transfer price, has been made suo motu, or made by the Assessing Officer and accepted by him; or is determined by an advance pricing agreement entered into by him under section 92CC of the Act; or is made as per safe harbour rules prescribed under section 92CB of the Act; or is arising as a result of resolution of an assessment through mutual agreement procedure under an agreement entered into under section 90 or 90A of the Act.

The proviso to said sub-section provides exemption in cases where the amount of primary adjustment made in any previous year does not exceed one crore rupees; and the primary adjustment is made in respect of an assessment year commencing on or before 1st April, 2016.

Several concerns have been expressed regarding effective implementation of secondary adjustments regime and seeking clarity in law.`

In order to address such concerns and to make the secondary adjustment regime more effective and easy to comply with, it is proposed to amend section 92CE of the Act so as to provide that:-

(i) the condition of threshold of one crore rupees and of the primary adjustment made upto assessment year 2016-17 are
alternate conditions;

(ii) the assessee shall be required to calculate interest on the excess money or part thereof;

(iii) the provision of this section shall apply to the agreements which have been signed on or after 1st April, 2017; however, no refund of the taxes already paid till date under the pre amended section would be allowed;

(iv) the excess money may be repatriated from any of the associated enterprises of the assessee which is not resident in India;

(v) in a case where the excess money or part thereof has not been repatriated in time, the assessee will have the option to pay additional income-tax at the rate of eighteen per cent on such excess money or part thereof in addition to the existing requirement of calculation of interest till the date of payment of this additional tax. The additional tax is proposed to be increased by a surcharge of twelve per cent;

(vi) the tax so paid shall be the final payment of tax and no credit shall be allowed in respect of the amount of tax so paid;

(vii) the deduction in respect of the amount on which such tax has been paid , shall not be allowed under any other provision of this Act; and

(viii) if the assessee pays the additional income-tax, he will not be required to make secondary adjustment or compute interest from the date of payment of such tax.

The amendments proposed in para (i) to (iv) above will take effect retrospectively from the 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.

Further, the amendments proposed in para (v) to (viii) will be effective from 1st September, 2019.

[Clause 30]

Extract of Clause 30 of Finance Bill 2019

30. Amendment of section 92CE.

In section 92CE of the Income-tax Act,––

(a) in sub-section (1),––

(I) in clause (iii), for the word, figures and letters “section 92CC”, the words, figures and letters “section 92CC, on or after the 1st day of April, 2017,” shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2018;

(II) in the proviso, in clause (i), for the words “one crore rupees; and”, the words “one crore rupees; or” shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2018;

(III) after the proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2018, namely:––

“Provided further that no refund of taxes paid, if any, by virtue of provisions of this sub-section as they stood immediately before their amendment by the Finance (No.2) Act, 2019 shall be claimed and allowed.”;

(b) in sub-section (2),––

(i) for the words “the excess money which”, the words “the excess money or part thereof, as the case may be, which” shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2018;

(ii) the following Explanation shall be inserted and shall be deemed to have been inserted with 5 effect from the 1st day of April, 2018, namely:––

Explanation.––For the removal of doubts, it is hereby clarified that the excess money or part thereof may be repatriated from any of the associated enterprises of the assessee which is not a resident in India.”;

(c) after sub-section (2), the following sub-sections shall be inserted with effect from the 1st day 10 of September, 2019, namely:––

“(2A) Without prejudice to the provisions of sub-section (2), where the excess money or part thereof has not been repatriated within the prescribed time, the assessee may, at his option, pay additional income-tax at the rate of eighteen per cent. on such excess money or part thereof, as the case may be.

(2B) The tax on the excess money or part thereof so paid by the assessee under sub-section (2A) shall be treated as the final payment of tax in respect of the excess money or part thereof not repatriated and no further credit therefor shall be claimed by the assessee or by any other person in respect of the amount of tax so paid.

(2C) No deduction under any other provision of this Act shall be allowed to the assessee in 20 respect of the amount on which tax has been paid in accordance with the provisions of sub-section (2A).

(2D) Where the additional income-tax referred to in sub-section (2A) is paid by the assessee, he shall not be required to make secondary adjustment under sub-section (1) and compute interest under sub-section (2) from the date of payment of such tax.”.

Note on Clause 30 of Finance Bill 2019

Clause 30 of the Bill seeks to amend section 92CE of the Income-tax Act relating to secondary adjustment in certain cases.

Sub-section (1) of the said section, inter alia, provides that the assessee shall make secondary adjustment in case where primary adjustment to transfer price takes place as specified therein. The proviso to said sub-section provides exemption in cases where the amount of primary adjustment made in any previous year does not exceed the threshold limit of one crore rupees; and the primary adjustment is made in respect of an assessment year commencing on or before 1st April, 2016.

It is proposed to amend clause (iii) of the said sub-section so as to provide that the secondary adjustment will be applicable where the primary adjustment to transfer price is determined by an advance pricing agreement entered into by the assessee under section 92CC on or after 1st April, 2017.

It is also proposed to insert a second proviso in sub-section (1) so as to provide that no refund of any taxes paid, if any, by virtue of provisions of sub-section (1) as they stood immediately before their amendment by this Bill, shall be claimed and allowed.

Sub-section (2) of said section, inter alia, provides that the excess money available to the associated enterprise shall be repatriated to India from such associated enterprise within prescribed time and in case of non-repatriation, interest thereon is to be computed deeming the same as advance to such associated enterprise.

It is proposed to amend said sub-section so as to provide that the interest shall be computed on the excess money or part thereof and that the excess money can be repatriated from any of the associated enterprises of the assessee, which is not resident in India, besides the associated enterprise with which the excess money is available.

These amendments will take effect retrospectively from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent assessment years.

It is also proposed to insert sub-section (2A) in the said section so as to provide that where the excess money or part thereof has not been repatriated in time, besides the existing requirement of calculation of interest, the assessee will have the option to pay additional income tax at the rate of eighteen per cent. on such excess money or part thereof.

It is also proposed to insert sub-section (2B) so as to provide that the tax on the excess money or part thereof so paid by the assessee under sub-section (2A) shall be treated as the final payment of tax in respect of the excess money or part thereof not repatriated and no further credit therefor shall be claimed by the assessee or by any other person in respect of the amount of tax so paid.

It is also proposed to insert sub-section (2C) so as to provide that no deduction under any other provision of this Act shall be allowed to the assessee in respect of the amount on which tax has been paid in accordance with the provisions of sub-section (2A).

It is also propsed to insert sub-section (2D) so as to provide that where the additional income-tax referred to in sub-section (2A) is paid by the assessee, he shall not be required to make secondary adjustment under sub-section (1) and compute interest under sub-section (2) from the date of payment of such tax.

These amendments will take effect from 1st September, 2019.

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