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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: January 2, 2012 (Date of publication)
AY:
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CITATION:

The assessee was required to comply with the transfer pricing provisions of s. 92 to 92F with respect to the transaction of interest-free loan to its subsidiary. The CUP method is the most appropriate method in order to ascertain the ALP of such international transaction by taking into account prices at which similar transactions with other unrelated parties have been entered into. For that purpose, an assessment of the credit quality of the borrower and estimation of a credit rating, evaluation of the terms of the loan e.g period of loan, amount, currency, interest rate basis, and additional inputs such as convertibility and finally estimation of arm’s length terms for the loan based upon the key comparability factors and internal and/or external comparable transactions are relevant. None of these inputs have anything to do with the costs; they only refer to prevailing prices in similar unrelated transactions instead of adopting the prices at which the transactions have been actually entered in such cases, the hypothetical arms length prices, at which these associated enterprises, but for their relationship, would have entered into the same transaction, are taken into account. Whether the funds are advanced out of interest bearing funds or interest free advances or are commercially expedient for the assessee or not, is wholly irrelevant in this context. As the transaction is of lending money, in foreign currency, to its foreign subsidiary, the comparable transaction should also be of foreign currency lending by unrelated parties (Perot Systems 130 TTJ 685 (Del) followed).

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 29, 2011 (Date of publication)
AY:
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CITATION:

On merits, s. 132B (1) provides that the assets seized u/s 132 may be adjusted against the amount of any “existing liability” and the liability determined on completion of the assessment. The expression “existing liability” cannot be ascribed a restricted meaning. The liability to pay advance tax is an “existing liability” and so the cash seized ought to have been adjusted against that liability. The cash seized from third parties, having been assessed in the assessee’s hands, retains the same character as cash seized from the assessee (Sudhakar Shetty 10 DTR (Mum) 173 followed)

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

In the books, the assessee treated the non-compete expenditure as capital in nature. Warding off competition in business even to a rival dealer will constitute capital expenditure. It is not necessary that the non-compete fee has to be paid to create monopoly rights. The non-compete agreement was to last for 5 years, which period is sufficient to give enduring benefit (Tecumesh India 132 TTJ 129 (Del) (SB) approved; Eicher Ltd 302 ITR 249 (Del) distinguished; Q whether depreciation is eligible left for determination by AO).

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

The profits from the supply of equipment were not chargeable to tax in India because the property and risk in goods passed to the buyer outside India. The assessee had not performed installation service in India. The fact that the contracts were signed in India could not by itself create a tax liability. The nomenclature of a “turnkey project” or “works contract” was not relevant. The fact that the assessee took “overall responsibility” was also not material. Though the supply of equipment was subject to the “acceptance test” performed in India, this was not material because the contract made it clear that the “acceptance test” was not a material event for passing of the title and risk in the equipment supplied. If the system did not conform to the specifications, the only consequence was that the assessee had to cure the defect. The position might have been different if the buyer had the right to reject the equipment on the failure of the acceptance test carried out in India. Consequently, the assessee did not have a “business connection” in India. The question whether the assessee had a “Permanent Establishment” was not required to be gone into (Ishikawajma Harima 288 ITR 408 (SC), Skoda 172 ITR 358 (AP) & Mahavir Commercial 86 ITR 147 followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 25, 2011 (Date of publication)
AY:
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CITATION:

U/s 147, it is only the AO’s opinion with respect to the income escaping assessment which is relevant for the purpose of reopening an assessment. While it is true if the audit party brings certain aspects to the notice of the AO and thereupon, the AO forms his own belief, it may be a valid basis for reopening assessment, the mere opinion of the Audit Party cannot form the basis for the AO to reopen an assessment. On facts, the AO had categorically come to the conclusion that the objection of the audit party was not valid and that the assessee’s explanation with respect to non-requirement of collection of TDS was required to be accepted. Accordingly, the AO could have no “reason to believe” that income had escaped assessment and so the s. 148 notice was without jurisdiction (P. V. S. Beedies 237 ITR 13 (SC) & Indian & Eastern Newspaper 119 ITR 996 (SC) distinguished; Lucas TVS 249 ITR 306 (SC) followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 23, 2011 (Date of publication)
AY:
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CITATION:

The argument that the pendency of the question in the case of the recipient cannot bar the application in the case of the payer is not acceptable because an “advance ruling” is a determination in relation to a “transaction”. A “transaction” always involves the payer and payee. It is not possible to separate an applicant from a transaction while he is seeking a Ruling, since the Ruling relates to a transaction undertaken by him or to be undertaken by him. A ruling also cannot be divorced from a transaction. The question posed before the income-tax authorities in the case of the recipient and before the AAR in the case of the payer is the same, namely, whether the income is assessable to tax. Consequently, the bar in s. 245R(2) applies and the payer’s application is not maintainable. The contrary view taken by the AAR in Airports Authority of India In re 168 Taxman 158 is not correct (Foster (AAR No. 975 of 2009) followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 22, 2011 (Date of publication)
AY:
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CITATION:

If the AO does not assess the income in respect of which the s. 148 notice was issued, it means there was no ‘reason to believe’ that income had escaped assessment. If so, the AO has no jurisdiction to assess any other escaped income that comes to his notice during the reassessment proceedings. Though in Sun Engineering 198 ITR 297 (SC), it was held that the AO had jurisdiction to assess other income, it was not a case where the AO had not assessed the income in respect of which the s. 148 notice was issued. Explanation 3 to s. 147 also contemplates that the income in respect of which the s. 148 notice is issued is assessed (Jet Airways 331 ITR 236 (Bom) & Ranbaxy Lab 60 DTR 77 (Del) followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 19, 2011 (Date of publication)
AY:
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CITATION:

The second proviso to s. 153A provides that “assessments relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search u/s 132 shall abate“. The words “pending on the date of initiation of search” has to be assigned simple and plain meaning. If the assessment is finalized, there are no “pending proceedings” to be abated. The pendency of an appeal does not mean that the assessment proceedings are pending. The word ‘abatement‘ refers to something, which is pending or alive and its suspension or termination. Proceedings which are complete are not liable for abatement (Circular No.7 of 2003 dated 5.9.2003 referred)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 15, 2011 (Date of publication)
AY:
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CITATION:

S. 194-I defines “rent” to include any payment, by whatever name called, under any lease, agreement or arrangement “for the use of” any machinery or plant. For a payment to be construed as “rent”, it is a condition precedent that the payer should have some control over the asset. There is a distinction between the use of an asset and the benefit derived from an asset. In a transaction of hire/ leasing, the possession of the goods and its effective control is given to the customer and the customer has the freedom and choice of how to use the asset. On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the owner, the control of the asset remains with the owner and there is no “use” by the customer (Asia Satellite 332 ITR 340 (Del) followed)

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COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: (Date of pronouncement)
DATE: December 14, 2011 (Date of publication)
AY:
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CITATION:

The department’s argument that the assessee has hired helicopter/air craft/vehicle is not correct because these were not hired on a periodic basis or on day-to-day basis. Instead, the transport services provided by the transporters were availed of. The assessee paid charges on the basis of flying hours, cost of landing charges and refuelling charges, etc. The crew, fuel, maintenance operation licences, etc. were all under the control of the service providers and not under the control of the assessee. If the assessee does not enjoy control over the vehicles and if the running and maintenance expenditure is borne by the transport service providers, the contract is not one for the “hiring” but is merely for availing transportation services. Payment for transportation services is not covered by s. 194-I (Accenture Services 44 SOT 290 (Mum), Tata AIG 43 SOT 215 (Mum) and Ahmedabad Urban Development Authority followed)

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