(312.2 KiB, 1,303 DLs)

Australian Tax Office Ruling on Transfer Pricing Implications

The Australian Taxation Office has issued a ‘Taxation Ruling’ dated 9.2.2011 in which it has discussed the application of the transfer pricing provisions to business restructuring by multinational enterprises.

The Ruling considers situations where such transfers occur between MNE members to implement changes in the MNE’s existing business arrangements or operations. Common examples are product supply chain restructurings involving conversion of a distributor into a sales agency arrangement or of a manufacturer into a provider of manufacturing services. Business restructurings also commonly involve the transfer of the ownership and management of intangibles such as patents, trademarks and brand names.

The Ruling explains the following process for setting or reviewing transfer pricing

Step 1: Characterize the international dealings between the associated enterprises in the context of the taxpayer’s business

 

Step 2: Select the most appropriate transfer pricing methodology or methodologies

 

Step 3: Apply the most appropriate method and determine an arm’s length outcome

The Ruling refers extensively to the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines)”.

The Ruling also gives practical examples to explain the transfer pricing law.

(118.1 KiB, 1,695 DLs)

Appointment of Vice President of the ITAT is by merit-based selection and not seniority. No reservation for OBC

Shri. B. R. Mittal & Shri. Sunil Kumar Yadav, Members, ITAT, filed petitions challenging the selection process for appointment to the three posts of Vice-President, ITAT.

Shri. Mittal contended that he had been wrongly superceded to the post of Vice-President (VP) by Shri. Tyagi, a junior Member. It was claimed that appointment to the post of VP was only a designation which had to go by seniority and that even if it were regarded as a promotion, an incumbent having requisite benchmark had necessarily to be promoted and could not be superseded by his juniors. On merits, it was contended that the Member who had been selected as VP was “under cloud” and these facts were not placed before the selection committee. It was also pleaded being under the administrative and financial control of a junior Member would be embarrassing.

Shri. Sunil Kumar Yadav contended, relying on the judgement of the CAT in G. E. Veerabhadrappa vs. UOI that as appointment to the post of Vice-President is by of direct recruitment, two (out of nine) posts of VP had to be reserved for OBC and that he, being OBC, should be appointed VP. HELD dismissing both petitions:

(i) Re B. R.Mittal: The scheme of the ITAT (Members) Rules, 1963 makes it clear that the post of a Member is different from that of Vice-President. While appointment of Member is by way of direct recruitment open to all who answer the eligibility criteria, appointment to the post of Vice-President has to made from amongst the Members by the method of selection. It cannot be said that a senior Member should automatically be appointed Vice-President. (G. E. Veerabhadrappa vs. UOI followed). In a selection, supersession is possible as the best person suited for the job has to be found irrespective of seniority;

(ii) The selection committee would have considered aspects relating to the efficiency, performance, capacity to work, quality of judgments and other attributes of the Members in the zone of consideration for selection. The fact that a chart of comparison was not prepared does not mean that comparative merit was not considered by the selection committee. Mention of comparative merit need not be made as it could be counter-productive and lead to bitterness. A citizen must have faith in the system rather than crying foul when he has not been able to make it on merits;

(iii) On facts, the challenge to the selection of the junior Member on the basis of adverse material is not acceptable because all that happened was that the said Member was issued a show cause and asked to remedy certain defects. After reply to the notice, no action was taken against him. A legitimate presumption can be made that the said Member improved after that incident;

(iv) Re SK Yadav: The appointment to the post of President and VP is by way of selection based on merit and not by way of promotion. No reservation can apply where the appointment is not by way of direct recruitment. Observations made in G.E. Veerabhadrappa vs. UOI that the appointment of VP is by way of direct recruitment are obiter and of no legal effect.

(104.0 KiB, 2,049 DLs)

ITAT subject to RTI though case details cannot be disclosed without applicant showing public interest

The Applicant sought from the CPIO, ITAT, inspection of records relating to appeals of Escorts Limited & another and information on how third parties can become interveners and inspection of records relating to s. 4 RTI compliance. Information on the procedure to make vigilance complaints was also sought. The application was rejected by the CPIO on the ground that ‘larger public interest’ had not been established. The appeal was rejected by the appellate authority on the ground that the Applicant was “misusing the provisions of the RTI Act to create unnecessary proceedings before the authorities who are expected to do the important government work”. It was held that the Applicant was “harassing the authorities under the said Act in the name of doing certain public good work, which is known only to his imaginations”. It was also alleged that the Applicant was not a ‘whistle-blower’ but a ‘nuisance maker’ and that he may be using the RTI Act as a ‘black-mailing or arms twisting tactics’. It was also held that judicial records were not liable for disclosure. On second appeal, HELD by the CIC:

(i) The argument that because the information held by ITAT is in the form of only judicial record, such record is outside the purview of the RTI Act is not acceptable. Even the Supreme Court and High Courts have rules for disclosure of judicial information. The only requirement is that applicant must adhere to the particular rules in making an application under the RTI Act.

(ii) On the question whether the information sought by the Applicant can be regarded as “information, the disclosure of which would amount to invasion of privacy” and exempt from disclosure u/s 8(1) (j), in Rakesh Kumar Gupta vs. PIO it was held that s. 8(1)(j) would not apply. However, as that order has been stated by the Delhi High Court, the earlier order of the CIC in Raj Kumari vs. CCIT would apply where it was held that personal information given to a public authority was not liable for disclosure. Disclosure of personal information will amount to invasion of privacy unless public interest is disclosed. Accordingly, inspection of the case files of third parties cannot be granted. However, the ITAT is liable to disclose the other information sought.

(iii) The decision of the Appellate Authority seems moved more by animosity than in reliance upon the law. The Applicant represents a class of persons created by the ITAT itself to generate information regarding delinquent activities of tax payers. In doing this, it cannot treat such a resource as a mere pest but must accept responsibility for this requirement. It may be kept in mind that this resource is sustained only by financial returns promised by disclosure about delinquent tax payers to the Department. While encouraging such an activity, the Income Tax Department cannot then seek to keep itself aloof from the consequences.

Under the Right to Information Act, the Court is required to provide information as to the assets declared by the Judges.

Where the Supreme Court declined to provide information as to whether the judges had declared their assets on the ground that the Chief Justice of India and the Supreme Court of India are two distinct Public Authorities and that the Registry of the Court does not hold the information requested, HELD, rejecting the stand:

(i) The Supreme Court of India is an institution created by the Constitution and is, therefore, a Public Authority within the meaning of Section 2(h) of the Right to Information Act;

(ii) The declaration of assets by the judges cannot be said to be provided to the Chief Justice of India in his personal capacity or in a “fiduciary” capacity;

(iii) The information concerning the Judges of the Supreme Court is available with the Supreme Court and the CPIO represents the Supreme Court as a Public Authority. Under the RTI Act, he is, therefore, obliged to provide this information to a citizen making an application under the RTI Act.

U/s 245A(b), as amended by the Finance Act 2007 w.e.f. 1.6.2007, “pendency of proceedings for assessment” before the AO for one or more assessment years is a necessary condition for invoking the jurisdiction of the Settlement Commission. Held in that context by Five Member Bench of the ITSC that:

(a) For the year for which returns have been filed but have neither been processed u/s 143(1) of the Act nor notices have been issue u/s. 143(2) of the Act, the proceeding for assessment can be said to be “pending”;

(b) Even for the years for which returns have been processed u/s 143(1) of the Act but now no time is left for issue of notices u/s 143(2) of the Act, the proceeding for the assessment years can be said to be “pending”;

(c) The term “date of conclusion of proceeding” under clause (iv) of 245A (b) means that the proceedings for assessment can be said to be pending before the AO in respect of those assessment years only for which the AO can still take action/initiate the proceeding under the Act;

(d) If in a composite application for several years, proceeding for certain assessment year are pending but are not pending for other years, the application can be admitted for those years for which proceedings are pending and held as “invalid” for other years. The whole application cannot be treated as ‘invalid’.