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DATE: February 20, 2019 (Date of pronouncement)
DATE: February 26, 2019 (Date of publication)
AY: 2010-11
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CITATION:
S. 92C: Taxability under Transfer Pricing provisions of shares purchased at value in excess of FMV: As the transaction of purchase of equity shares is a capital transaction and does not give rise to any income, the transfer pricing provisions do not apply. Chapter X is a machinery provision. It can only be invoked to bring to tax any income arising from an international transaction. It is necessary for the revenue to show that income does arise from the international transaction. S. 2(24)(xvi) & 56(2)(viib) are prospective

There is no dispute before us that the transaction of purchase of shares by the respondent of its subsidiary company i.e. A.E. at a price much higher than its fair market value would be international transaction as defined in Section 92(B) of the Act. The only issue before us as considered by the impugned order of the Tribunal is whether Chapter X of the Act would at all be applicable in case of any investment made on capital account. This on the premise that the transaction of purchase of equity share capital would not give rise to any income. We note that similar issue was before this Court in Vodafone 268 ITR 1 and this court inter alia observed that Chapter X of the Act is machinery provision to arrive at the arm’s length price of transaction between associated enterprises

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DATE: December 20, 2018 (Date of pronouncement)
DATE: December 22, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 92BA(i)/ 40A(2)(b) Domestic Transfer Pricing: Entire law on what constitutes "Specified Domestic Transactions” explained. The Dept's contention that a shareholder has beneficial interest in the assets of the company is contrary to all canons of Company law

We cannot, and the law does not permit us, to hold that HDFC Ltd. is the beneficial owner of 22.64% of the shares in the Petitioner by clubbing the share holding of HDFC Investments Ltd. with the shareholding of HDFC Ltd. If we were to do this, we would be effectively holding that HDFC Ltd., being a shareholder of HDFC Investments Ltd., is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This, in law, is clearly impermissible because a shareholder of a company can never have any beneficial interest in the assets (movable or immovable) of that company. In the present case, if we were to accept the contention of the Revenue, it would mean that HDFC Ltd. is the beneficial owner of the shares which HDFC Investments Ltd. holds in the Petitioner. This would be contrary to all canons of Company Law. It is well settled that a shareholder of a company can never be construed either the legal or beneficial owner of the properties and assets of the company in which it holds the shares. This being the position in law, we find that the Revenue is incorrect in trying to club the shareholding of HDFC Investments Ltd. in the Petitioner along with the shareholding of HDFC Ltd. in the Petitioner, to cross the threshold of 20% as required in explanation (a) to section 40A(2)(b). We are supported in the view that we take by a decision of the Supreme Court in the case of Bacha F. Guzdar Vs. Commissioner of Income Tax [(1955) 27 ITR 1].

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DATE: September 18, 2018 (Date of pronouncement)
DATE: October 23, 2018 (Date of publication)
AY: -
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CITATION:
Transfer Pricing: The categorical finding of fact by the ITAT that a comparable (Motilal Oswal) is engaged in a qualitatively different and diversified business than that of the assessee cannot be challenged as a substantial question of law as the finding is not perverse or vitiated by any error apparent on the face of the record

We are in full agreement with the findings given by the ITAT. In fact, looking to the facts as narrated by the ITAT in the impugned order, we would have no hesitation in holding that by comparing Motilal Oswal Investments Advisory Pvt. Ltd. to the assessee company (for the purposes of determining the ALP) would be like comparing apples and oranges. This being the case, we do not find any infirmity in the order of the ITAT excluding Motilal Oswal Investments Advisory Pvt. Ltd. from the final list of comparables which would give rise to any substantial question of law

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DATE: September 24, 2018 (Date of pronouncement)
DATE: October 5, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 260A: Transfer Pricing disputes with regard to exclusion and inclusion of comparables to determine Arm's Length Price (ALP) would not necessarily give rise to substantial questions of law except if there is perversity of finding or failure to adhere to the settled principles of law while determining comparables

This Court was rather surprised as to why the Revenue brings such Appeals to this court and regularly. The Courts in India seem to be taking a view that the Revenue has routinely brought such matters before this Court knowing fully well that the Transfer Pricing particularly with regard to exclusion and inclusion of certain comparables to determine Arm’s Length Price (ALP) would not necessarily give rise to purely legal questions or substantial questions of law

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DATE: August 23, 2018 (Date of pronouncement)
DATE: August 30, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 92B Transfer Pricing of AMP Expenditure: In the absence of material to suggest that there was an "arrangement, understanding or action in concert" with respect of the AMP expenditure incurred by the assessee, the TPO is not justified in coming to the conclusion that there was an international transaction u/s 92B and that the assessee should have recovered an amount from its AE. The request of the Dept for a remand to the TPO is not acceptable. A remand to the assessment stage cannot be a matter of routine; it has to be so done only when there is anything in the facts and circumstances to so warrant or justify

On a careful consideration of all these factors, including the inconsistency in the approach of the AO/TPO with respect to the AMP expenditure being in the nature of an international transaction as expenditure incurred on behalf of the assessee, including the quantum and nature of expenditure and including lack of any material to suggest that there was “an arrangement, understanding or action in concert” with respect of the expenditure incurred by the assessee and including the fact that, in our considered view, the expenditure incurred by the assessee was in nature of bonafide business expenditure in furtherance of its legitimate business interests, we are of the considered view that there is no legally sustainable basis for the TPO coming to the conclusion that there was an international transaction, under section 92B, on the facts of this case

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DATE: August 21, 2018 (Date of pronouncement)
DATE: August 28, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 92 Transfer Pricing: (i) Chapter 10 presupposes the existence of “income” and lays down machinery provision to compute ALP of such income. S. 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. If no income has accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act (ii) It is a jurisdictional requirement that the AO has to record satisfaction that there is “income” or potential of income. The recording of 'satisfaction' about the existence of an "international transaction" is also essential. This is only within the jurisdiction of the AO and the CIT(A) cannot substitute his satisfaction for that of the AO. Such substitution of satisfaction is impermissible in law as it amounts to curing a jurisdictional defect

We are of the view that since chapter 10 pre-supposes the existence of “income” and lays down machinery provison to compute ALP of such income, if it arises from an „International transaction‟. Section 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. Accordingly, since no income had accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act

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DATE: June 26, 2018 (Date of pronouncement)
DATE: August 4, 2018 (Date of publication)
AY: 2008-09
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CITATION:
S. 260A Transfer Pricing: Appeals against exclusion or inclusion of comparables to determine ALP of tested parties should not be filed in a ritualistic manner. Any inclusion or exclusion of comparables per se cannot be treated as a question of law unless it is demonstrated to the Court that the Tribunal or any other lower authority took into account irrelevant consideration or excluded relevant factors in the ALP determination that impact significantly

However, before closing, we would like to record the fact that we find that the Revenue is regularly filing appeals from the orders of the Tribunal in respect of Transfer Pricing particularly with regard to exclusion and inclusion of certain companies as comparables to determine ALP of tested parties. These appeals are being filed in a ritualistic manner. This results in the orders of the Tribunal which are essentially findings of fact in respect of exclusion/inclusion of a comparable being challenged without pointing out in any manner perversity of finding or failure to adhere to the settled principles of law while determining comparables such as Rule 10B of the Income Tax Rules, 1961. This unnecessarily takes up the scarce time of the Court.

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DATE: June 25, 2018 (Date of pronouncement)
DATE: June 27, 2018 (Date of publication)
AY: 2006-07
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CITATION:
S. 260A: Entire law on when transfer pricing disputes constitute "substantial questions of law" for challenge in the High Court explained. Transfer Pricing Adjustments on the basis of the comparables are a matter of estimate of broad and fair guess-work of the Authorities based on relevant material. The exercise of fact finding or ‘Arm’s Length Price’ determination or ‘Transfer Pricing Adjustments’ should become final with a quietus at the hands of the final fact finding body, i.e. the Tribunal. The ITAT's findings of fact cannot be challenged in the High Court unless it is shown that the findings are ex-facie perverse and unsustainable and exhibit total non-application of mind by the Tribunal to the relevant facts of the case and evidence before it

This Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act. This Court is only concerned with the question of law and that too a substantial one, which has a well defined connotations as explained above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz. Sections 143, 147 etc. are final and are binding on this Court. While dealing with these appeals under Section 260-A of the Act, we cannot disturb those findings of fact under Section 260-A of the Act, unless such findings are ex-facie perverse and unsustainable and exhibit a total nonapplication of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal.

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DATE: March 6, 2018 (Date of pronouncement)
DATE: May 3, 2018 (Date of publication)
AY: -
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CITATION:
S. 92CB Transfer Pricing Safe Harbour Rules: If the assessee has exercised the safe harbour option under Rule 10THD(1) & the AO has not passed any order under rule 10THD(4) declaring the exercising of option to be invalid, the option is treated as valid. Thereafter, the Transfer Pricing regime does not apply & the AO has no authority to make any reference to the TPO to ascertain the arm's length price of the assessee's specified domestic transactions. CBDT's circular dated 10.3.2006 could not have and does not lay down anything to the contrary

In the present case, admittedly, after the petitioner exercised such an option, the Assessing Officer passed no order under subrule (4) of rule 10THD declaring that the exercising of option was invalid. In terms of subrule (7) and subrule (8) of the said rule, therefore, the option exercised by the assessee would be treated as valid. Once this conclusion is reached, it follows as a natural and necessary corollary that the Transfer Pricing regime would not apply. That being the case, the Assessing Officer had no authority to make any reference to the TPO to ascertain the arm’s length price of the petitioner’s specified domestic transactions. Reference itself was therefore, invalid. CBDT’s circular dated 10.3.2006 could not have and does not lay down anything to the contrary. The circular merely prescribes the circumstances under which the Assessing Officer would make reference to the TPO. Nowhere does the circular provide that as soon as such circumstances exist, the Assessing Officer would make a reference to the TPO, irrespective of the fact that the assessee had opted for safe harbour and such option was treated or deemed to be treated as validly exercised. Legally speaking, CBDT could not have given any such directive. Eventually no such directive can be discerned from the circular.

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DATE: April 11, 2018 (Date of pronouncement)
DATE: April 27, 2018 (Date of publication)
AY: 2006-07
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CITATION:
Transfer Pricing: The "international transaction" as defined in s. 92F(v) has to be a genuine transaction. Transfer pricing provisions do not apply to non-genuine or sham transactions

It is elementary that the ALP is determined of an `international transaction’, which has been defined in section 92B of the Act. The term `transaction’, for the purposes of the Chapter–X containing transfer pricing provisions, has been defined in clause (v) of section 92F to include an arrangement, understanding or action in concert. It shows that the ALP is always determined of an international transaction, which is genuine, but may be formal or in writing and whether or not intended to be enforceable by legal proceeding. If a transaction itself is not genuine, there can be no question of applying the transfer pricing provisions to it. In such an eventuality of a supposed genuine transaction turning out to be non-genuine, all the consequences which would have flowed for a real transaction, are reversed. In other words, certain deductions which would have been otherwise allowed in case of a genuine international transaction, are denied. Nitty-gritty of the matter is that only a declared and accepted genuine international transaction can be subjected to the transfer pricing regulations. If an international transaction is proved to be not genuine, the transfer pricing provisions are not triggered

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