Case Law Details
Brief of the Case
ITAT Delhi held in the case of Headstrong Services India Pvt. Ltd. vs. DCIT that both the submission of the assesses is unacceptable. Regarding first submission for not carrying out any transfer pricing adjustment in view of the benefit enjoyed by it u/s 10A is concerned, we find that no exception has carved out by the statute for non-determination of the ALP of an international transaction of an assesses who is eligible for the benefit of deduction section 10A/10B or any other section. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. Further section 92C (4) clearly states that when the total income of an assesses from an international transaction is computed having regard to its ALP, then, no deduction u/s 10A or any other section including those covered under Chapter VIA of the Act shall be allowed on enhanced value after computation of income determined on the basis of the ALP of an international transaction. The legislature has unconditionally provided for not allowing the benefit of deduction under any section in respect of the addition made on account of transfer pricing adjustment.
Facts of the Case
The following points raised in this appeal –
Whether transfer pricing adjustment on account of Arm Length Price is applicable on assesses who is entitled for deduction u/s 10A / 10B.
Whether deduction u/s 10A / 10B is available on enhanced value after adjustment of Arm Length Price.
Contention of the Assesses
The ld counsel of the assesses submitted that its profit is deductible u/s 10A. He submitted that once the profit from rendering of software development services is deductible u/s 10A, then, no motive can be attributed for artificially reducing the profit by manipulating the price with its AE. It was elaborated that the profit of an assesses, eligible for deduction under section 10A, becomes tax neutral irrespective of its quantum. He, therefore, urged that either the international transaction should not be processed in terms of Chapter-X of the Act or higher amount of deduction should be allowed corresponding to the amount of addition on account of transfer pricing adjustment.
Held by ITAT
ITAT held that both the submission of the assesses is unacceptable. In so far as the first submission for not carrying out any transfer pricing adjustment in view of the benefit enjoyed by it u/s 10A of the Act is concerned, we find that no exception has carved out by the statute for non-determination of the ALP of an international transaction of an assesses who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assesses entitled to deduction u/s 10A or 10B or any other relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction.
Further section 92C (4) clearly states that when the total income of an assesses from an international transaction is computed having regard to its ALP, then, no deduction u/s 10A or any other section including those covered under Chapter VIA of the Act shall be allowed in respect of the amount of income by which the total income of the assesses has been enhanced after computation of income determined on the basis of the ALP of an international transaction. The legislature has unconditionally provided for not allowing the benefit of deduction under any section in respect of the addition made on account of transfer pricing adjustment.
Not allowing of any benefit u/s 10A in respect of an addition on account of transfer pricing adjustment per-supposes the existence of transfer pricing addition in the first instance to an assesses who is otherwise eligible to the benefit of deduction under this section. If one was to presume that no addition towards transfer pricing adjustment is comprehensible in the case of an assesses enjoying the benefit of deduction u/s 10A, then there was no need to enshrine an express provision forbidding the grant of deduction under this section in respect of enhancement of income due to transfer pricing adjustment. Once the legislature has en grafted an unambiguous provision explicitly spelling out the non-granting of deduction u/s 10A on the enhanced income due to transfer pricing addition, we are afraid to accept the assessee’s contention, which runs diagonally opposite to the unequivocal language of proviso to section 92C (4). This contention, if taken to a logical conclusion, would amount to obliterating the proviso itself, which is patently incorrect.
Our view is fortified by the Special Bench order in the case of Aztech Software and Technology Services Ltd. vs. ACIT (2007) 107 ITD 141 (SB) (Bangalore) in which similar issue has been decided by the Special Bench by holding that availability of exemption u/s 10A to the assesses is no bar to applicability of sections 92C and 92CA. Similar view has been taken by Pune Bench of the Tribunal in the case of ACIT vs. MSS India (P) Ltd. (2009) 123 TTJ 657 (Pune).
Accordingly appeal disposed of.
