Price Waterhouse vs. CIT (Calcutta High Court)

S. 92B(1): If assessee contends that it has not entered into an “international transaction” with an AE, the TPO has to counter that by furnishing relevant information. Failure to do so can be challenged by a Writ Petition     

Calcutta High Court Aug 6, 2015

When the petitioner no.1 replied to the said notice by its letter dated 29th April, 2015, the concerned respondent authority ought to have given a reply by supplying such relevant materials with which it come to a conclusion that the petitioner no.1 was an “associated enterprise” of PricewaterhouseCoopers Services BV. The reason why furnishing of such relevant materials were singularly important is that if the petitioner no.1 was not an “associated enterprise” of PricewaterhouseCoopers Services BV, there cannot be any computation of income from “international transaction” having regard to arm’s length price as envisaged under section 92 of the Income Tax Act, 1961.

The only issue which falls for consideration in the facts and circumstances of the instant case is whether there has been any “international transaction” between the petitioner no. 1 on one hand and PricewaterhouseCoopers Services BV on the other, as defined under section 92B of the Income Tax Act, 1961.

(i) A plain reading of sub-section (1) of section 92B of the Income Tax Act, 1961 reveals that “international transaction” means a transaction between two or more “associated enterprises”. Meaning of “associated enterprise” (emphasis supplied) has been statutorily elaborated under section 92A of the Income Tax Act, 1961. Clause (a) under sub-section (1) of section 92A of the Income Tax Act, 1961, spells out that one of the three statutory requirements, i.e. management or control or capital are necessary to be fulfilled for an enterprise to be associated with another enterprise. The kind of management or control or capital required has been further elaborated in sub-section (2) of section 92A of the Income Tax Act, 1961.

(ii) In the facts of the instant case, it is noticed from the records that even after the writ petitioner no.1, by a letter dated 29th April, 2015, replied to the notice dated 24th March, 2015, issued by the Joint Commissioner of Income Tax (Transfer Pricing Officer), Kolkata, taking a specific point that the partnership firm had not entered into any “international transaction” within the meaning of section 92B of the Income Tax Act, during the assessment year 2012 – 2013 nor in any earlier assessment years, the Income Tax authorities have remained conspicuously silent by not furnishing relevant materials based on which it came to a conclusion that there has been an “international transaction” within the meaning of section 92B of the Income Tax Act, 1961. If there is no relevant material in the hands of the Income Tax authorities with which it has come to an incontrovertible conclusion that the petitioner no.1 is an “associated enterprise” of PricewaterhouseCoopers Services BV, within the meaning of section 92A of the Income Tax Act, 1961, the question of issuance of notice dated 24th March, 2015, would not arise. When the petitioner no.1 replied to the said notice by its letter dated 29th April, 2015, the concerned respondent authority ought to have given a reply by supplying such relevant materials with which it come to a conclusion that the petitioner no.1 was an “associated enterprise” of PricewaterhouseCoopers Services BV. The reason why furnishing of such relevant materials were singularly important is that if the petitioner no.1 was not an “associated enterprise” of PricewaterhouseCoopers Services BV, there cannot be any computation of income from “international transaction” having regard to arm’s length price as envisaged under section 92 of the Income Tax Act, 1961.

(iii) Undoubtedly, in the facts and circumstances of the instant case, for reasons stated earlier, a prima facie case has been made out for an ad interim order in terms of prayer (g) of the petition. Such ad interim order shall continue until final disposal of the writ petition.

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