the TPO is wrong in adopting the enterprise level margins as the TNMM. U/s 92F (ii) r.w.s. 10B(e), TNMM requires comparison of net profit margins realized by an enterprise from an international transaction(s) and not comparison of operating margins of enterprises
The argument that s. 28(iiid) covers only the “profit” (difference between sale consideration and face value of the DEPB credit) and that the “face value” is assessable u/s 28(iiib) is not correct. The entire amount received on transfer of the DEPB credit is “profits” and falls under s. 28(iiid). There was no basis or justification for the Tribunal to hold that the face value of the DEPB credit can be reduced from the sale consideration. It is not permissible to bifurcate the proceeds of the DEPB into “face value” and “excess of face value”. The approach of the Tribunal is misconceived and unsustainable. As the assessee had an export turnover exceeding Rs.10 crores and did not fulfill the conditions set out in the third proviso to s. 80HHC (3), it was not entitled to a deduction u/s 80HHC on the amount received on transfer of DEPB.
The assessee had included the said capital gains in the P & L A/c and it was not its’ case that same was not includible. The fact that the capital gains was exempt u/s 47(iv) does not mean it can be excluded from the “book profit” because no such exclusion was permitted under the Explanation to s. 115JB. The taxability of capital gain is relevant only for the purpose of computation of income under the normal provisions and has nothing to do with the computation of “book profits”.
The argument that the income of the non-resident had not been received in India is not acceptable. The agreement provided that the charter fee of $600,000 was “payable by way of 85% of gross earning from the fish-sales“. The chartered vessels with the entire catch were brought to the Indian Port, the catch was certified for human consumption, valued, and after customs and port clearance and the non-resident received 85% of the catch. So long the catch was not apportioned the entire catch was the property of the assessee and not of non-resident company as the latter did not have any control over the catch. It is after the non-resident company was given share of its 85% of the catch it did come within its control. It is trite to say that to constitute income the recipient must have control over it. As the apportionment was in India, the non-resident effectively received the charter-fee in India. This being the first receipt in the eye of law and being in India was chargeable to tax u/s 5(2)
In CIT vs. Samsung Electronics 227 CTR 335 the Karnataka High Court has confined its decision to the issue of responsibility of the assessee u/s 195 in deducting tax at source before making remittances to non-residents. Even though the court held in favour of the Revenue on the application of the TDS provisions, the court made it clear in paragraph 78 that it has not examined the question of tax liability of the non-resident assessees in respect of the payments received from assesses in India
S. 94(7) was inserted w.e.f. 1.4.2002 to curb claim of such loss. However, the effect of s. 94(7) is that only losses to extent of dividend have to be ignored by the AO and not the entire loss. Losses over and above the dividend are still allowable even after s. 94(7). This shows that Parliament has not treated the dividend stripping transaction as sham or bogus or the entire loss as a fictitious or fiscal loss. If the argument of the Department is to be accepted, it would mean that before 1.4.2002 the entire loss would be disallowed as not genuine but, after 1.4.2002, a part of it would be allowable u/s 94(7) which can never be the object of s. 94(7)
Re user of trademark by the domestic entity on discretionary / mandatory basis: If a domestic Associate Enterprise uses a foreign trademark, no payment to the foreign entity on account of such user is necessary in case the user of the trademark is discretionary. However, the “income” arising from such transaction is required to be determined at arm‘s length price
The amendment made to s. 32(2) w.e.f AY 2002-03 is substantive. A substantive amendment is normally prospective in operation. S. 32(2) is a deeming provision which by legal fiction provides that the unabsorbed depreciation allowance u/s 32(1) is deemed to be depreciation allowance for the succeeding year(s). A deeming provision has to be strictly interpreted and cannot extend beyond the purpose for which it is intended. S. 32(1) deals with depreciation allowance for the current year and s. 32(2) uses the present tense to refer to allowance to which effect `cannot be’ and `has not been’ given. This indicates that s. 32(2) speaks of depreciation allowance u/s 32(1) for the current year starting from AY 2002-03. Brought forward unabsorbed depreciation of earlier years cannot be included within the scope of s. 32(2). If the intention of the legislature had been to allow such b/fd unabsorbed depreciation of earlier years at par with current depreciation for the year u/s 32(1), s. 32(2) would have used past or past prefect tense and not the present tense. Further, the unabsorbed depreciation for the period from AY 1997-1998 to 1999-2000 has been referred to as “unabsorbed depreciation allowance” and given a special name and cannot fall within s. 32(1) in AY 2002-03
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.
The recorded reason that the violation of s. 11(5) r.w.s. 13(1)(d) by the assessee led the amount of Rs. 1.02 crores to be included in the assessee’s total income is clearly contrary to the legal position that while the assessee may lose exemption u/s 10(23C) for not adhering to the conditions of s. 11(5), this does not result in the said amount being chargeable to tax in the hands of the assessee. The fact that the amount was not invested in the prescribed manner does not mean that it can be assessed as income