SABIC Innovative Plastics India Pvt Ltd. v. ACIT|Transfer pricing adjustments for intra-group services

5 April 2017

The Ahmedabad Bench of Income-tax Appellate Tribunal deleted a transfer pricing adjustment made by the Transfer Pricing Officer (as subsequently upheld by the Dispute Resolution Panel) concerning a payment for intra-group services made to a related party of the taxpayer. The tribunal rejected the Transfer Pricing Officer’s “nil” (zero) arm’s length price on management services under the comparable uncontrolled price method.

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DDIT v. Nipro Asia Pte Ltd. |Profits attributed to permanent establishment| transfer pricing study rejected

28 February 2017

The Delhi Bench of the Income-tax Appellate Tribunal held that the Assessing Officer correctly sought to apply Rule 10 of the Income-tax Rules, 1962 for purposes of determining the profits attributable to a branch in respect of the marketing activities related to direct sales made by the head office, absent a “correct” transfer pricing study report. The tribunal found 30% of the profits were attributable to the branch for its marketing activities in India.

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Pr.CIT v. Mitsui Prime Advanced Composites India Pvt. Ltd. |Penalty assessment for related-party transactions deleted

14 March 2017

The Delhi High Court agreed with the tribunal’s decision, to remove a penalty imposed on the taxpayer for an alleged concealment of income with respect to certain related-party transactions even though the taxpayer accepted the transfer pricing adjustment. The High Court held that because the taxpayer had entered a new line of business (manufacturing), the taxpayer’s failure to disclose certain benefits and advantages from related-party services could not have triggered the automatic presumptive application of the penalty.

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Hospira Healthcare India Private Limited v. DCIT|Related-party relationship upheld, sales constituted 20% of total sales

15 March 2017

The Chennai Bench of the Income-tax Appellate Tribunal held that under a provision of India’s tax law, “influence” implies dominant influence when “a person who purchased more than 1/5th of the total sales of the taxpayer would have a distinctly dominant influence on the pricing and can exercise a de facto control.” The tribunal, thus, concluded that sales to two customers constituting more than 20% of the taxpayer’s total sales constituted “dominant influence.” The related-party relationship was upheld.

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HITT Holland Institute of Traffic Technology B.V. vs. DDIT (ITAT Kolkata)

Entire law on Permanent Establishment, Force of Attraction principle, taxability of software embedded in hardware as royalty, make available of technical services etc.(Feb 20, 2017)

 Under section 4 of the Act, the charge to tax is on the total income of every person. Section 5 of the Act explains the scope of total income of every person. Section 5(2) lays down the scope of total income of every person who is a non-resident. Any income received or deemed to be received in India and any income which accrues or arises in India or is deemed to have, accrued and arisen in India shall be included in his total income. Section 9 of the Act lays down as to when income shall be deemed to have accrued or arisen in India.

Section 90 of the Act provides that Central Government may enter into an agreement with the Government of any country outside India for avoidance of Double Taxation of income under the Act and under the corresponding law in force in that country. Section 90(2) provides that where such agreement exists with any country outside India, then in relation to an assessee to whom such agreement applies, the provisions of the Act, shall apply only to the extent they are more beneficial to that assessee.

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DIT vs. A. P. Moller Maersk AS (Supreme Court)

S. 9(1)(vii)/ Article 12: In order to constitute “technical services”, services catering to the special needs of the person using them must be rendered. The provision of a common facility is not “technical services”. Amount paid towards reimbursement of a common technical computer facility is not “fees for technical services”. Amount received by way of reimbursement of expenses does not have the character of income  (March 6, 2017)

   

(i) The assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other informations. For the sake of convenience of all these agents, a centralised system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost. The system comprises of booking and communication software, hardware and a data communications network. The system is, thus, integral part of the international shipping business of the assessee and runs on a combination of mainframe and non-mainframe servers located in Denmark. Expenditure which is incurred for running this business is shared by all the agents. In this manner, the systems enable the agents to co-ordinate cargos and ports of call for its fleet.

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ACIT vs. Veer Gems (ITAT Ahmedabad)

S. 92A Transfer Pricing: Important law explained on meaning of expression “associated enterprise”. The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises “associated enterprises” so as to subject their transactions to the rigors of transfer pricing law      Jan 20, 2017

(i) In order to invoke the transfer pricing provisions, and deal with the determination of arm’s length price, it is absolutely essential that the international transaction in question must be between the associated enterprises. It is perhaps the most basic aspect of the matter and foundational basis on which transfer pricing provisions are invoked. It is, therefore, wholly unreasonable to decline to deal with this issue on the ground that, in any event, the ALP adjustment in question is also not sustainable in law. The issue whether the transactions between two entities are transactions between the associated enterprises cannot be infructuous or academic just because the transactions are at arm’s length prices, though this proposition would be true the other way round i.e. the issue whether the transactions at arm’s length price or not would be infructuous in the event of enterprises not being associated enterprises. We are unable to see any merits in the approach adopted by the learned CIT(A). In our considered view, the first thing that needs to be adjudicated upon is whether or not the assessee and Blue Gems BVBA are associated enterprises. As we proceed to deal with this question, we may first take note of Section 92A.

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