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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: August 27, 2011 (Date of publication)
AY:
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CITATION:

On facts, the argument that the SLA is in essence a distributorship agreement for the marketing of IBM computer programs and that the IP licenses granted to IBMA is only to enable it to carry on the function of a distributor is not acceptable. The SLA is not a distribution agreement which confers distribution rights independently of the grant of IP rights. There is no reference in the SLA to the payments being for the exercise of general distributorship rights. Rather, the payments are described as being for the acquisition of the stated IP rights. The detail of the SLA concerns the definition of IP and IP rights. There is no such detail with respect to distribution rights. The rights/content granted by the SLA are, in each case, rights/content of a kind contemplated by Article 12(4) and so the whole of the consideration is assessable as “royalty”

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COURT:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: August 26, 2011 (Date of publication)
AY:
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CITATION:

Explanation 1 to s. 271(1)(c) does not apply to transfer pricing adjustments. Penalty for transfer pricing adjustments is governed by Explanation 7 to s. 271(1)(c). Under Explanation 7 to s. 271(1)(c), the onus on the assessee is only to show that the ALP was computed by the assessee in accordance with the scheme of s. 92 C in “good faith” and with “due diligence”. The assessee adopted the TNMM and no fault was found with the computation of ALP as per that method. Instead, the method was rejected on the ground that CUP method was applicable. It is a contentious issue whether any priority in the methods of determining ALPs exists. So, when TNMM is rejected, without any specific reasons for inapplicability of the TNMM and simply on the ground that a direct method is more appropriate to the fact situation, it is not a fit case for imposition of penalty. The expression ‘good faith’ used alongwith ‘due diligence’, which refers to ‘proper care, means that not only must the action of the assessee be in good faith, i.e. honestly, but also with proper care. An act done with due diligence would mean an act done with as much as care as a prudent person would take in such circumstances. As long as no dishonesty is found in the conduct of the assessee and as long as he has done what a reasonable man would have done in his circumstances, to ensure that the ALP was determined in accordance with the scheme of s. 92 C, deeming fiction under Explanation 7 cannot be invoked

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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: August 26, 2011 (Date of publication)
AY:
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CITATION:

Under Article 12 (3) of the India-Israel DTAA, royalty is defined inter alia to mean payments for the “use of” a “copyright” or a “process”. There is a distinction between “use of copyright” and “use of a copyrighted article”. In order to constitute “use of a copyright”, the transferee must enjoy four rights viz: (i) the right to make copies of the software for distribution to the public, (ii) The right to prepare derivative computer programmes based upon the copyrighted programme, (iii) the right to make a public performance of the computer programme and (iv) The right to publicly display the computer programme. If these rights are not enjoyed, there is no “use of a copyright”. The consideration is also not for “use of a process” because what the customer is paying for is not for the “process” but for the “results” achieved by use of the software. It will be a “hyper technical approach totally divorced from ground business realities” to hold that the use of software is use of a “process”. Motorola Inc 96 TTJ 1 (Del) (SB) and Asia Sat 332 ITR 340 (Del) followed. Gracemac Corp 42 SOT 550 (Del) not followed

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COURT:
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DATE: (Date of pronouncement)
DATE: August 17, 2011 (Date of publication)
AY:
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CITATION:

As the AO had accepted that the assessee was eligible for s. 10A deduction and had only proposed a variation on the quantum, the DRP had no jurisdiction to hold that the assessee was not at all eligible for s. 10A deduction

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COURT:
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DATE: (Date of pronouncement)
DATE: August 16, 2011 (Date of publication)
AY:
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CITATION:

Counsel for the Revenue could not point as to how interest on borrowed funds to the extent of Rs.2.79 crores was attributable to earning dividend income which are exempt u/s 10(33) of the Act. Therefore, in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning the dividend income, the decision of the Tribunal in deleting the disallowance of interest made u/s 14A cannot be faulted

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COUNSEL:
DATE: (Date of pronouncement)
DATE: August 12, 2011 (Date of publication)
AY:
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CITATION:

The objection to the Special Bench hearing the issue only on the ground that the High Court has admitted the appeal is not acceptable for two reasons. Firstly, the mere fact that a superior authority is seized of an issue identical to the one before the lower authority does not create any impediment on the powers of the lower authority in disposing off the matters involving such issue as per prevailing law. If the suggestion is accepted, there would be chaos and the entire working of the Tribunal will come to standstill. Secondly, the Special Bench was constituted at the assessee’s request because it then wanted an “escape route” from a potential adverse view. The assessee cannot now argue that the Special Bench be deconstituted. Such “vacillating stand” cannot be approved

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COURT:
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DATE: (Date of pronouncement)
DATE: August 6, 2011 (Date of publication)
AY:
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CITATION:

The clauses in the offshore supply contract agreement regarding the transfer of ownership, the payment mechanism in the form of letter of credit which ensures the credit of the amount in foreign currency to the applicant’s foreign bank account on receipt of shipment advice and insurance clause establish that the transaction of sale and the title took place outside Indian Territory. The ownership and property in goods passed outside India. The transit risk borne by the applicant till the goods reach the site in India is not necessarily inconsistent with the sale of goods taking place outside India. The parties may decide between them as to when the title of the goods should pass. As the consideration for the sale portion is separately specified, it can well be separated from the whole. (Ishikwajima Harima 288 ITR 410 (SC) & Hyosung Corporation 314 ITR 343 (AAR) followed; Ansaldo Energia SPA 310 ITR 237 (Mad) distinguished)

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COURT:
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DATE: (Date of pronouncement)
DATE: August 4, 2011 (Date of publication)
AY:
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CITATION:

In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it’s contention on Section 14A of the Income Tax Act, 1961

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COURT:
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DATE: (Date of pronouncement)
DATE: August 2, 2011 (Date of publication)
AY:
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CITATION:

As the amounts received by Minicon from the third parties have been taxed in the hands of Minicon and that has attained finality, taxing the very same amount once again in the hands of the assessee would amount to taxing an income twice which is not permissible in law. In Akshay Textile Trading 304 ITR 401 (Bom) it was held that in the absence of any cogent evidence to show that the transaction was not genuine, the amounts received by an intermediary cannot be assessed in the hands of the assessee. In the present case, save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Minicon is a sham transaction. Accordingly, the decision of the Tribunal that the amounts received by Minicon on account of letting out the premises is liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon is a sham and bogus transaction cannot be accepted

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COURT:
CORAM:
SECTION(S):
GENRE:
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COUNSEL:
DATE: (Date of pronouncement)
DATE: August 2, 2011 (Date of publication)
AY:
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CITATION:

The expression “before giving effect to the 2nd proviso to s. 48‟ in the Proviso to s. 112(1) pre-supposes the existence of a case where computation of long-term capital gains could be made in accordance with the formula contained in the 2nd proviso in s. 48. It means that the asset must be one qualified for indexation under the second proviso to s. 48. There is no justification in not giving effect to the words used in the proviso. As the 2nd proviso to s. 48 is not applicable to non-residents, occasion to apply the proviso to s. 112(1) does not arise. A non-resident foreign company cannot claim the double benefit of protection against rupee value fluctuation as well as indexation. Timken 294 ITR 513 (AAR) not followed; BASF AG 293 ITR (AT) 1 followed

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