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DATE: February 9, 2018 (Date of pronouncement)
DATE: February 10, 2018 (Date of publication)
AY: 2011-12
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S. 54: The expression “cost of the residential house so purchased” in s. 54 is not confined to the cost of civil construction but includes furniture and fixtures if they are an integral part of the purchase. The fact that the assessee did not make the claim is no reason to deny the claim if he is otherwise entitled to it (Scope of Srinivas R Desai 155 TTJ 743 (Ahd) expanded)

The expression used in the statute is “cost of the residential house so purchased” and it does not necessarily mean that the cost of the residential house must remain confined to the cost of civil construction alone. A residential house may have many other things, other than civil construction and including things like furniture and fixtures, as its integral part and may also be on sale as an integral deal. There are, for example, situations in which the residential units for sale come, as a package deal, with things like air-conditioners, geysers, fans, electric fittings, furniture, modular kitchens and dishwashers. If these things are integral part of the house being purchased, the cost of house has to essentially include the cost of these things as well

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DATE: January 23, 2018 (Date of pronouncement)
DATE: January 24, 2018 (Date of publication)
AY: 2012-13
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Transfer Pricing: Important law explained on whether termination of Option rights under an agreement can be treated as a "deemed international transaction" under section 92B(2) of the Act read with Rule 10B (4) in the light of the judgements in Vodafone's own cases of the Supreme Court (341 ITR 1) and the Bombay High Court (385 ITR 169).

When we interpose the aforesaid statutory definition in Section 92C(1), we find that the expression ‘international transaction’ means “an arrangement, understanding or action in concert etc between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other an arrangement, understanding or action in concert having a bearing on the profits, income, losses or assets of such enterprises ……..”. Therefore, in order to ascertain whether a particular transaction or not is an international transaction or not, the necessary preconditions which are to be satisfied are (a) that it is in the nature “an arrangement, understanding or action in concert etc”; (b) that it is between two or more associated enterprises, either or both of whom are non-residents; and (c) that it has a bearing on the profits, income, losses or assets of such enterprises

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DATE: September 26, 2017 (Date of pronouncement)
DATE: October 4, 2017 (Date of publication)
AY: 2008-09
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S. 140A/ 221(1): Law explained on whether an assessee who defaults on paying self assessment tax u/s 140A while filing the return of income is liable for penalty u/s 221(1) if he files a revised return of income and pays the tax thereon at the time of filing the revised return of income

As a plain reading of the above statutory provisions would show, the lapse, referred to in section 140A(1), is the failure “to pay such (admitted) tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return” and the lapses punishable under section 221(1) are the lapses in respect of “default in making a payment of tax”. The default triggering the penal liability under section 221(1) is the default in making payment of tax, and that the default in payment is tax is with reference to the filing of the income tax return. Viewed thus, default is committed at the point of time when a return of income is filed without making payment of the admitted tax liability. Clearly, therefore, the assessee committed a default in not paying the admitted tax liability when it filed the original income tax return, without payment of admitted tax liability, on 30th September 2008. To this extent, there is no dispute or ambiguity at all.The question then arises as to what is the impact of filing a revised income tax return

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DATE: April 27, 2017 (Date of pronouncement)
DATE: May 9, 2017 (Date of publication)
AY: 2009-10
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Transfer Pricing AMP Adjustment: Entire law on whether the advertisement expenditure incurred by the Indian AE towards brand of a foreign company can be treated as an “international transaction” and whether a notional adjustment can be made in the hands of the Indian AE towards compensation receivable from the foreign AE for “deemed brand development” explained

A service has to be conscious activity and it cannot be a subliminal exercise- as is the impact on brand value in this case. A service, by definition, is an act of helping, or doing something on behalf of, someone. A passive exercise cannot be defined as a service. Every benefit accruing to an AE, as a result of dealing with another AE, is not on account of service by the other AE. What I benchmarked is not the accrual of ‘benefit’ but rendition of ‘service’. All benefits are not accounts or services by someone, just as all services do not result in benefits to the parties. The expressions ‘benefit’ and ‘service’ have different connotations, and what is truly relevant, for the purpose of definition of ‘international transaction’ in Indian context, is ‘service’- not the benefit. There is no rendition of service in the present context

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DATE: January 31, 2017 (Date of pronouncement)
DATE: March 17, 2017 (Date of publication)
AY: 2011-12, 2012-13
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Taxability of "Other income" under DTAA: Income which is not chargeable under specific provisions of Articles 6 to 21 cannot be taxed under the residuary provision. Only income not covered by specific Articles (e.g. alimony, lottery income, gambling income, damages etc) can be charged as "Other income"

An income is of such a nature as, on satisfaction of conditions specified in the related provision, could be taxed under any of these specific treaty provisions, cannot be covered by this residuary clause. Take for example, income earned by a resident of a contracting state by carrying on business in the other contracting state. When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as ‘other income’ nevertheless. It is important to bear in mind the import of expression ‘not expressly dealt with in the foregoing articles’.

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DATE: November 30, 2016 (Date of pronouncement)
DATE: February 6, 2017 (Date of publication)
AY: 2011-12
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Transfer Pricing - Meaning of “Associated Enterprises”: The fact that an enterprise can “influence prices and other conditions relating to sale” does not make it an “associated enterprise” of the assessee if it does not participate in the (a) capital, (b) management, or (c) control of the assessee and thus does not fulfil the basic rule u/s 92A(1). S. 92A(2)(i) has to be read with s. 92(A)(1). Even if the conditions of s. 92A(2)(i) are fulfilled, these enterprise cannot be treated as ‘associated enterprise’ if the requirements of s. 92A(1) are not fulfilled

The definition of ‘associated enterprise’, as the above academic analysis shows, has two approaches- wider approach and narrow approach. A narrow approach to the concept of associated enterprises takes into account only “de jure” association i.e. though formal participation in the capital or participation in the management. A wider approach to the concept of ‘associated enterprises’ takes into account not only the de jure relationships but also de facto control, in the absence of participation in capital or participation in management, through other modes of control such as commercial relationships in which one has dominant influence over the other. This wider concept is clearly discernible from the principles underlying approach to the definition of ‘associated enterprises’ in the tax treaties and has also been adopted by the transfer pricing legislation in India in an unambiguous manner. There is no other justification in the Indian transfer pricing legislation, except the participation in capital of an enterprise, management of an enterprise or control of an enterprise, which can lead to the relationship between enterprise being treated as ‘associated enterprises’. What essentially follows is that clause (i) of Section 92A(2) has, at its conceptual foundation, de facto control by one of the enterprise over the other enterprise, on account of commercial relationship of its buying the products, either on his own or through any nominated entities, from such other enterprise and in a situation in which it can influence the prices and other related conditions. The wordings of clause (i), however, do not reflect this position in an unambiguous manner inasmuch as it does not set out a threshold of activity, giving de facto control to the other enterprise engaged in such commercial activity, in percentage terms or otherwise- as is set out in clause (g) and (h) or, for that purpose, in all other operative clauses of Section 92A(2)

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 20, 2017 (Date of publication)
AY: 2008-09
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S. 92A Transfer Pricing: Important law explained on meaning of expression "associated enterprise". The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises "associated enterprises" so as to subject their transactions to the rigors of transfer pricing law

If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as ‘associated enterprises’. Section 92A(1) and (2), in that sense, are required to be read together, even though Section 92A(2) does provide several deeming fictions which prima facie stretch the basic rule in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in “control” of the other enterprise. What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 18, 2017 (Date of publication)
AY: 2010-11
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S. 9(1): Important law explained as to the taxability of export sale commission payments received by non-resident agents and the obligation of the assessee to deduct TDS thereon in the context of s. 9(1)(i)/ 9(1)(vii) of the Act and relevant provisions of the DTAA

In the light of the above legal position, what we need to decide at the outset is whether the amounts paid by the assessee to the non-resident agents could be termed as “consideration for the rendering of any managerial, technical and consultancy services”. As we do so, it is useful to bear in mind the fact that even going by the stand of the Assessing Officer, at best services rendered by the nonresident to the agent included technical services but it is for this reason that the amounts paid to these agents, on account of commission on exports, should be treated as fees for technical services. Even proceeding on the assumption that these non-resident agents did render the technical services, which, as we will see a little later, an incorrect assumption anyway, what is important to appreciate is that the amounts paid by the assessee to these agents constituted consideration for the orders secured by the agents and not the services alleged rendered by the agents. The event triggering crystallization of liability of the assessee, under the commission agency agreement, is the event of securing orders and not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order

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DATE: January 3, 2017 (Date of pronouncement)
DATE: January 16, 2017 (Date of publication)
AY: 2013-14
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S. 9(1)(vi)/ 9(1)(vii): Important law explained on whether payment for use of equipment can be assessed as "royalty" and whether payment for rendering of services can be assessed as "fees for technical services" in the context of s. 9(1)(vi) and 9(1)(vii) and Article 12 of the India-Canada DTAA

Article 12(4) provides that, “The term “fees for technical included services” as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein”. In order to invoke article 12(4)(a) it is necessary that such services should “make available” technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design The services provided by BT Canada were simply management support or consultancy services which did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression ‘make available’

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DATE: November 17, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: 2007-08
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Interplay between Article 9 of the DTAA and Transfer Pricing law in the Act explained. While Article 9 is an enabling provision, the TP mechanism under the domestic law is the machinery provision. There is no occasion to read Article 9 as confined to enabling ALP adjustment in respect of only domestic entities. The mere fact that the OECD Commentary etc give examples related to economic double taxation situations does not imply that the Article 9 (1) cannot be applied to other situations

Once it is not in dispute that the arms length standards are, therefore, to be applied in computation of taxable profits, as is specific mandate of article 9, it is only axiomatic that the manner in which arm’s length standards are to be applied is something which has not been defined by the treaties and the mechanism provided under the domestic law, therefore, must hold good. Article 9(1) does not, and cannot, provide the basis of the ALP adjustments as tax treaties restrict application of domestic law of taxation rather than create independent rights of taxation. Article 9(1) is thus, in a way, an enabling provision, and the TP mechanism under the domestic law is the machinery provision. The provisions of article 9(1) permit ALP adjustment in all situations in which the arm’s length standards require higher profits in the hands of any “one of the enterprises, but by reason of those conditions, have not so accrued” to be “included in the profits of that enterprise and taxed accordingly”. The provisions are clear and unambiguous. There is no occasion to read this provision as confined to enabling ALP adjustment in respect of only domestic entities

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