Nangia & Co - Tax and Regulatory Newsletter - August 01-15, 2015
Nangia & Co - Tax and Regulatory Newsletter - August 01-15, 2015
Published on: Mar 3, 2016
Transcripts - Nangia & Co - Tax and Regulatory Newsletter - August 01-15, 2015
August 01-15, 2015
M & A
1. DTAA to prevail over rates prescribed by Section 206AA
2. Services that do not allow the recipient to use the
knowledge in future do not satisfy the ‘make available’
condition and hence cannot be taxed as ‘Fee for Technical
3. Amendment extending the limitation period under section
201 not retrospective
4. India signs agreement with the USA to implement the
Foreign Account Tax Compliance Act
5. Re-characterisation of legitimate redemption of preference
shares by giving it a “different color” of advancing
unsecured loan is inappropriate. Commercial expediency of
the transaction cannot be questioned. Deletes interest
adjustment on re-characterised transaction. Remits the
matter with regards to transfer of shareholding in subsidiary
for re-verification by applying DCF method.
6. Auditor’s certificate merely spelling out Head Office
overheads as a percentage of revenues of Indian Entity
cannot be treated as determinative of arm’s length price
(“ALP”) without undertaking a benchmarking analysis,
follows Delhi HC’s Cushman & Wakefield ruling
7. Transfer pricing Adjustment cannot exceed the amount
received by the AE customers and the actual value of
international transaction between the AEs; Extraordinary
expenses/losses to be excluded for the computation of
operating profit margin during start-up phaseA quasi-capital
loan or advance is not a routine loan transaction;
nevertheless, the arm’s length price for the same could not
8. Limitation period of 1 year under Section 11B of the Central
Excise Act 1944 not applicable to refund claims filed under
Rule 5 of Cenvat Credit Rules 2004
M & A
9. Relinquishment of property share under family arrangement
not regarded as transfer
1. DTAA to prevail over rates prescribed by
Infosys BPO Limited [‘the
taxpayer’] filed statements of
deduction of tax for various
quarters of the FY 2010-11 and
2012-13 in respect of payments
made to non-resident during the
period. The Assessing Officer
[‘AO’], by an intimation u/s 200A,
issued a demand against the
taxpayer as it was of view that
there were cases of short
The AO opined that since the taxpayer did not furnish the PAN of the
recipient, it was obligated to deduct tax @ 20% as envisaged u/s
206AA of the Income Tax Act [‘the Act’].
The taxpayer challenged the AO’s order on the ground of jurisdiction
of the AO u/s 200A and the raising of consequential demand. The
Commissioner of Income Tax (Appeals) [‘CIT(A)’], upon appeal,
rejected the objections regarding the scope of Section 200A, though
decided the appeal in the taxpayer’s favour by ruling that TDS cannot
be more than the tax liability provided under the DTAA. Aggrieved,
both parties preferred an appeal before the Income Tax Appellate
Before the Income Tax Appellate Tribunal the taxpayer challenged
the jurisdiction of the AO u/s 200A for making such adjustment and
raising the consequential demand on the ground that issue of
applying the rate of tax was is not arithmetical error in the statement
or an incorrect claim apparent from any information in the
The Revenue challenged the same by citing subsection 1 of Section
200A which clarified that in respect of deduction where such rate
was not in accordance with provisions of the Act the same could be
considered as an incorrect claim apparent from the statement.
The Income Tax Appellate Tribunal observed and ruled as under -
The payment being in nature of Royalty and FTS, the taxpayer
deducted tax @ 10%. The application of DTAA to taxpayer was
not disputable. The scope of deduction of tax at source cannot
be more than the tax liability under DTAA.
Reliance was placed on the Pune ITAT ruling in Serum Institute of
India Limited [TS-158-ITAT-2015(PUN)], Co-ordinate bench ruling
in Bosch Ltd. [TS-904-ITAT- 2012(Bang)]. Further reliance was
placed on the Karnataka HC ruling in Bharti Airtel Limited & Ors
[TS-722- HC-2014(KAR)] to hold that the obligation of deducting
tax at source arose only when there was a sum chargeable under
The provisions of TDS have to be read along with the machinery
provisions of computing the tax liability and there was no error
or illegality in the order of the CIT(A) on the fact that there was
no scope for deduction of tax at the rate of 20% as provided
under the provisions of Section 206AA of the IT Act when the
benefit of DTAA is available.
The issue of applying the rate of tax at 20% and ignoring the
provisions of DTAA is a debatable issue and did not fall in the
category of any arithmetical error or incorrect claim apparent
from any information in the statement, as per the provisions of
section 200A (1) of the Act. The Revenue’s contention in this
regard was rejected. The ITAT noted that in present case the
question of applying the rate of 20% as provided u/s 206AA
requires a long drawn reasoning and finding.
The Tribunal thus held that applying the rate of 20% without
considering the provisions of DTAA and consequent adjustment
while framing the intimation u/s 200A was beyond the scope of
the said provision and the AO travelled beyond its jurisdiction by
making the adjustment u/s 200A. Ruling was made in favour of
2. Services that do not allow the recipient to
use the knowledge in future do not satisfy the
‘make available’ condition and hence cannot be
taxed as ‘Fee for Technical Services
ABB Inc. [‘the taxpayer’] is a
company incorporated in the
United States of America and
engaged, inter alia, in providing
business development, market
services and other support
services to its Indian Associated
Entities [‘AEs’], i.e. ABB
and ABB Global Industries & Services Limited.
The taxpayer earned fees towards support services provided to its AEs.
The respective AEs had withheld taxes on such payment. The taxpayer
in its return of income claimed that the services provided to Indian AEs
did not ‘make available’ any technical knowledge, experience, skill etc.
and hence, were not taxable as ‘fees for technical services’ in India
under India-US tax treaty. The Assessing Officer (‘AO’) rejected the
claim on the grounds that a person without technical knowledge cannot
provide sales and marketing, pricing, product development strategy
and are mostly covered by consultancy services. Further, the AO opined
that once Indian AEs have withheld taxes on the payments made, the
taxpayer cannot take a different view in its tax return. The Dispute
Resolution Panel, on appeal, confirmed the AO’s contention and held
ABB Global Industries & Services Limited to be a Dependent Agency PE
[‘DAPE’] of the taxpayer in India and directed the AO to tax the profit
attributable to the DAPE.
Aggrieved, the taxpayer preferred an appeal before the Income Tax
Appellate Tribunal which observed and ruled as under –
The Tribunal placed reliance on the decision of the Hon'ble
Karnataka High Court in the case of De Beers India (P) Ltd [346 ITR
467] and held that unless there was a transfer of technology
involved in technical services extended by the US company, the
'make available' clause was not satisfied and, accordingly, the
consideration for such services could not be taxed under Article
12(4)(b) of India-US tax treaty.
The decisive factor for taxability was to see whether the services
results in transfer of technology. The services did not enable the
recipient of the services to utilize the knowledge or know-how on
his own in future without the aid of the service provider. Therefore
the make available condition is not satisfied. Accordingly, the
he additions made on account of ‘Fees for technical services’ were
In connection with DAPE, when the PE was admittedly in respect of
the trading transactions only, no part of the earning from rendering
of services to the AE could be related to the nature of the PE
activities, the consideration for these services can be brought to tax
in the source jurisdiction, i.e. India.
Further, in connection with taxability of the profit of the DAPE in
the hands of the taxpayer, the Tribunal relied on Bombay High
court decision of SET Satellite (Singapore) Pte. Ltd [307 ITR 205] and
held that even if there was a DAPE, it would have no taxable
income in the hands of the taxpayer in the absence of the finding
that the DAPE had been paid a remuneration less than arm’s length
remuneration. Accordingly, the additions made on account of DAPE
[Source: ITA No. 1613/Bang/12]
3. Amendment extending the limitation period
under section 201 not retrospective
Oracle India Pvt. Ltd. [‘the
assessee’] was held to be an
assessee in default and was re-
issued a notice u/s 201(1)/(1A)
dated January 20, 2015 for TDS
defaults for the AY 2008-09.
Subsequently, an order dated
March 17, 2015 was passed
5 was passed treating assessee in default.
The said notice was premised on the amendment introduced in
Section 201(3) vide Finance (No. 2) Act, 2014, whereby the limitation
to treat an assessee as one in default was increased to seven years
from the end of relevant Financial Year. Earlier, for the same
assessment year, a notice had been issued under the same
provisions on February 17, 2014. The Delhi High Court vide order
dated December 5, 2015 [WP(C) 2061/2014] had quashed the notice
holding that the said notice was time barred in view of the provisions
of Section 201(3) as it then existed. Aggrieved by the reissuance of
notice u/s 201(1)/(1A), the assessee filed a writ petition before Delhi
Before the High Court, the assessee relied on the Supreme Court
ruling in the case of S.S. Gadgil v. Lal & Co.[53 ITR 231(SC)] which has
been subsequently followed in several other decisions of the
Supreme Court including K.M. Sharma v. ITO [254 ITR 772 (SC)] and
National Agricultural Cooperative Marketing Federation of India v.
UOI [ 260 ITR 548 (SC)]. Based on these rulings, the assessee argued
that the limitation prescribed by the Income Tax Act was not merely
a period of limitation but that it imposed a fetter upon the power of
the AO to take action under the said provisions.
In this context, it was submitted that since the power in respect of
AY 2008-09 expired on March 31, 2011 in terms of Sec 201(3) as it
then existed, it could not be revived unless the legislature specifically
made a retrospective amendment to the same. The substitution of
Section 201(3) by the Finance (No.2) Act, 2014 was with effect from
October 1, 2014 and not with retrospective effect.
The High Court noted that Revenue had re-issued the notice in an
attempt to take advantage of the amendment to Section 201(3)
which was brought into effect from October, 2014. Taking note ofthe
co-ordinate bench ruling in assessee’s own case quashing issuance of
original notice u/s 201(1)/(1A), the High Court held that those
proceedings which had ended and attained finality with the passing of
the order dated December 5, 2014 of this Court in WP(C) 2061/2014
cannot now be sought to be revived through this methodology adopted
by the Assessing Officer. Even otherwise, insofar as the Financial Year
2007-08 was concerned, the period for completing the assessment
under Section 201(1)/201(1A) had expired on March 31, 2015. In light of
above, the High Court quashed the notice reissued and order u/s 201
and allowed assessee’s writ petition.
4. India signs agreement with the USA to
implement the Foreign Account Tax Compliance
The Foreign Account Tax
Compliance Act [‘FATCA’] was
enacted in 2010 by the
Government of the United States of
America with a view to combat tax
evasion by U.S. citizens and
residents through the use of
offshore accounts. India has signed
an Inter-Governmental Agreement
[‘IGA’] with the United States of
America to implement the FATCA.
Pursuant to the IGA, foreign
financial institutions [‘FFIs’] in
will be required to report tax information about United States [‘US’]
account holders directly to the Indian Government which will, in turn,
relay that information to the US Internal Revenue Service [‘IRS’].
Further, the US IRS will provide similar information about Indian
citizens having any accounts or assets in the US. This automatic
exchange of information is scheduled to begin on 30 September
FATCA requires ‘financial institutions’ to register with the IRS and
obtain a Global Intermediary Identification Number (GIIN) and
undertake due diligence of its records (typically the documents
obtained from the customers at the time of opening the accounts) to
identify whether the ‘financial account’ is held by a US citizen/
resident, or not.
FACTA requires US financial institutions to withhold 30% of the
payments made to FFIs who do not agree to identify and report
information on US account holders. Till date, the US has IGAs with
more than 110 jurisdictions. Till date, 714 Indian financial institutions
have obtained registration with the US IRS
FATCA is likely to impact a wide range of non-US financial institutions
namely banks, hedge funds, private equity funds, broker-dealers,
clearing organisations, trust companies and insurance companies, as
they will now have to collect specified details from US persons and/
or withhold tax on qualifying payments. Affected institutions will be
required to comply with specific due diligence and verification
procedures. Certain information on US account holders must be
submitted to the IRS through Indian Government on an annual basis.
FATCA will have a major impact on fresh investments coming into
India from US entities (including NRIs based in US), as India is one of
the world's largest recipient of remittances from its diaspora based
abroad, particularly in the US.
5. Re-characterisation of legitimate redemption
of preference shares by giving it a “different
colour” of advancing unsecured loan is
inappropriate. Commercial expediency of the
transaction cannot be questioned. Deletes
interest adjustment on re-characterised
transaction. Remits the matter with regards to
transfer of shareholding in subsidiary for re-
verification by applying DCF method.
Facts of the case
Aegis Limited [“the Taxpayer”], is
engaged in providing IT enabled
business processing outsourcing
services (BPO) to its Associates
Enterprises (AEs) for the third
party contracts and in-house
campaigns and receivable
management services. During the
year under consideration i.e. AY
2009-10 the following issues were
raised before the Tribunal for its
Transfer Pricing ITES segment
Taxpayer provided three sets of services viz. provision of ITeS for
third party contracts, for in-house campaigns and receivable
Transactional Net Margin Method (“TNMM”) was selected as the
most appropriate method (“MAM”) in the transfer pricing
documentation for benchmarking all the three transactions
independently and were determined to be at arm’s length.
TPO however, aggregated these transactions and undertook fresh
benchmarking thereby arriving at final set of 8 comparables having
an arithmetic of 30.46% which was later reduced to 25.99% by the
Dispute Resolution Panel [“DRP”] after considering foreign exchange
as non-operating in nature.
Aggrieved by the decision of the DRP, taxpayer approached the
Taxpayer argued before the Tribunal that if three comparables viz.
Accentia Technologies Limited, Coral Hub Limited and Genesys
International are excluded based on various jurisprudence and R
Systems be included then the Taxpayer’s margin falls within the +/-
5% tolerance band. The arguments were accepted and the
corresponding addition deleted if it falls within the +/-5% variation.
Transfer of equity shares
Taxpayer sold 1,65,28,404 shares out of its shareholding in Aegis
BPO Services (Gurgaon) Limited [“Aegis BPO”] to Essar Services
Holding Limited, Mauritius [“Essar Mauritius”]. These shares
were valued at “Nil” based on the certificate obtained from
chartered accountant whilst the transaction was undertaken at Rs.
12.72 per equity share.
TPO observed that the taxpayer had also issued its own equity
shares to Essar Mauritius at Rs. 400 per equity share whilst the fair
market value [“FMV”] based on CCI guidelines worked out to 22.82.
On this basis, the TPO applied rate of 133 per share (after
considering the swap ration 1:3) on transfer of 1,65,28,404 shares
of Aegis BPO and rejected the valuation undertaken by the
Taxpayer thereby proposing an adjustment.
DRP reduced the valuation to Rs. 104 per share.
Tribunal observed that there were several defects in the
computation of the lower authorities. Accordingly, Tribunal upheld
application of DCF as the method for valuation, remitted the matter
back to the TPO for re-computation partly allowing the ground.
Taxpayer entered into certain guarantee arrangements in respect
of certain borrowings taken by the AEs. This transaction was not
disclosed in the Accountant’s Report i.e. Form 3CEB on the pretext
that the said transaction does not constitute an international
TPO held that 5% ought to have been charged on such corporate
guarantee by the taxpayer, thereby proposing an adjustment. On
further appeal, DRP reduced the margin to 3% (2% for providing
corporate guarantee and 1% towards risk).
Before the Tribunal it was argued that based on the decision of the
Delhi Tribunal in the case of Bharti Airtel Limited, said transaction
cannot be held to be an international transaction. Without prejudice,
plethora of decisions were referred to wherein 0.5% to 1% has been
held as adequate compensation towards said transaction. The Taxpayer
in subsequent year had entered into guarantee commission agreement
and has recovered 1% with effect from FY 2007-08. Thus, such an
adjustment is unwarranted.
Tribunal agreed to the Taxpayer’s contention and upheld
application of 1% as sufficient remuneration thereby allowing the
Subscription and redemption of equity shares
Taxpayer had subscribed to preference shares of its AE i.e. Essar
Mauritius. During the year under consideration, it redeemed part of
the preference shareholding at par and determined it to be at arm’s
TPO contented that since the preference shares were non-
cumulative and redeemable at par without any dividend, the said
transaction is in essence advancing an interest free loan on which
interest of 15.41% ought to have been recovered based on the
FINMMDA guidelines and 133(6) response from CRISIL thereby re-
characterising the transaction as such.
DRP granted partial relief by reducing the interest rate to 13.78% to
be increased by 1.65% mark-up for the risks.
Aggrieved, Taxpayer requested for Tribunal’s intervention in the
matter. Taxpayer opposed the approach adopted by the TPO of re-
characterising a legitimate transaction and questioning the
commercial expediency by relying on various judicial
pronouncements on the matter.
On detailed analysis of the facts the Tribunal held:
Tribunal reject the approach adopted by the TPO of re-
characterising the transaction on the pretext that its
exceptional circumstances without placing any material facts
TPO cannot “disregard any apparent transaction and
substitute it, without any material of exception circumstances
highlighting that the assessee has tried to conceal the real
transaction or some sham transaction has been unearthed.”
Commercial expediency of the taxpayer cannot be questioned.
Transaction pertaining to investment is shares cannot be given
different colour so as to expand the scope of transfer pricing
adjustments by re-characterising it as “interest free loans”.
Reliance is also placed on decision of jurisdictional High Court
Besix Kier Dabhol 1
It has been consistently held that subscription of shares
cannot be characterised as loan and thereby no interest
thereon be chargeable. Accordingly, the adjustment on
account of re-characterisation is deleted.
Foreign exchange gain on redemption of preference shares
The taxpayer had earned foreign exchange gain on account of
redemption of preference shares. TPO treated this gain as
“business income” rather than under the head “capital gains” and
was considered to be taxable since the preference shares held by
the taxpayer was akin to giving interest free loans.
210 Taxmann 151 (Bom - HC)
On further appeal, Tribunal held that the approach of the TPO is
not correct since the gain was on account of shares which is capital
in nature and shall be chargeable under the head “capital gains”.
Alleged interest on advance to AE
Taxpayer paid advance for engaging consultants for identifying
prospective companies for acquisition in South African region
which was erroneously disclosed as “advance” to AE.
TPO held it to be in the nature of interest free loans and imputed
interest at 15.41%, thereby making the alleged addition, confirmed
Before the Tribunal, facts were clarified alongwith supporting
evidences and it was thereby held that the same could not be
treated as loan as the transaction was purely for business and
commercial consideration and revenue in nature. Accordingly the
alleged addition stood deleted.
The decision also covers other grounds pertaining to few other direct
tax disallowances which are not covered in detail herein.
This is yet another decision which emphasizes the fact that the
revenue authorities can neither step into the shoes of the taxpayer nor
question the commercial expediency while re-characterising a
legitimate business transaction, specifically being capital in nature with
an attempt to tax the alleged income based on premises and
assumptions and without bringing on record any unblemished
[Source: Aegis Limited (ITA No. 1213/Mum/2014)]
Facts of the case
During AY 2009-10, the taxpayer entered into international
transactions pertaining to purchase of assets/ spare parts,
reimbursement of direct expenses and reimbursement of Head
Office expenses with its associated enterprises (“AEs”).
6. Auditor’s certificate merely spelling out Head
Office overheads as a percentage of revenues
of Indian Entity cannot be treated as
determinative of arm’s length price (“ALP”)
without undertaking a benchmarking analysis,
follows Delhi HC’s Cushman & Wakefield ruling
Facts of the case
Metro Tunneling Group [“the
Taxpayer”], is a joint venture
(“JV”) undertaking of two Indian
entities (i.e. M/s Larson and
Toubro and M/s IRCON) and three
foreign entities (i.e. M/s Shimizu
Corporation, M/s Samsung
Corporation and M/s Dywidag
International). Registered as an
AOP, it was formed to execute a
contract awarded by Delhi Metro
Rail Corporation for the design
and construction of tunnel.
As per the MOU entered into between the members of JV, the
cost of assets and spare parts supplied to the taxpayer by the
members and the amount of direct expenses incurred by them
on behalf of the taxpayer shall be reimbursed by the taxpayer.
The members of JV are entitled to charge indirect expenses i.e.
Head Office overheads, on the basis of the Overhead Absorption
Rate certificate issued by their respective auditors not exceeding
8.5% of revenues attributable to respective members.
The taxpayer, in its income tax return, itself has suo-moto
disallowed INR 78 lacs, being the excess reimbursement charged
in the books.
During the course of the assessment proceedings the Transfer
Pricing Officer [“TPO”] accepted the ALP of two transactions viz
purchase of spare parts and reimbursement of expenses. However,
TPO determined the ALP reimbursement of head office expenses at
NIL on following basis:
There is no objective basis for upper limit of 8.5%;
The taxpayer failed to justify the cost-benefit analysis for
reimbursement of such expenses;
The taxpayer failed to identify the comparable uncontrolled
transaction i.e. how such services would be valued by an
independent entity dealing in similar circumstances;
Taxpayer failed to provide bifurcation in terms of nature of
services, overhead cost and amount involved.
Taxpayer failed to show the utility of services rendered and its
quantification which demonstrate that charges are not linked with actual
service. Aggrieved by the findings of the TPO, taxpayer approached the
Commissioner of Income Tax (Appeals) [“CIT(A)”] but failed to find any
Subsequently, the taxpayer approached the Tribunal to adjudicate the
Contentions of the Taxpayer before the Tribunal:
Taxpayer has duly benchmarked transaction relating to
reimbursement of head office expenses on the basis of Auditor’s
certificate and suo-moto disallowed INR 78 lacs out of
Identical reimbursements made in the preceding year have been
accepted by the Assessing Officer;
Foreign entities are bound to incur indirect expenses when they are
supplying assets and spares hence, such reimbursement is justified;
It is not in the domain of TPO to examine the prudence of the
taxpayer or necessity to incur expenditure while forming opinion
that foreign entities should not have allocated any indirect expenses
Contentions of the Taxpayer before the Tribunal:
Auditors for each of AEs have adopted different criteria to determine
Certificate of Samsung pertained to calendar year 2008, while that of
Shimizu pertains to FY 2007-08 whilst the year under consideration is
Percentage of overheads have been estimated by Auditor and same
does not prove the nature of services rendered by AEs.
Taxpayer has claimed application of cost plus method however, AEs
have raised debit notes on estimate basis.
Applying the ration of Delhi HC in the case of Cushman &
Wakefield, taxpayer failed to ascertain ALP of head office expenses
so reimbursed and hence, the lower authorities are justified in
determining ALP at NIL.
The Tribunal duly considered the facts of the case and arrived at the
TPO is not entitled to question the commercial prudence of the
taxpayer or necessity to incur expenses.
Tribunal observed that supply of assets and spares and incurring of
direct expenses are possible only if the AEs maintain proper
establishment and infrastructure and hence it is essential to
allocate a portion of indirect expenses to the taxpayer.
Upper limit of 8.5% has been ascertained for calendar year 2008 in
two cases and for financial year 2007-08 in one case vis-à-vis
financial year 2008-09 which is under consideration. Therefore,
such mismatch of the period indicates that AEs have charged the
taxpayer on estimated basis and not on actual basis.
Tribunal also illustrated fallacy in the approach adopted by the
taxpayer which gives misleading results.
Tribunal rejected the acceptance of auditor’s certificate on
They pertain to different accounting year;
There is no standardization of types of overheads that is
required to be considered;
They have given certificates with qualifications.
Accordingly it was held that the taxpayer has merely relied on the
auditor’s certificate and did not undertake benchmarking exercise as
per Indian TP regulations. Thus, the said approach is rejected.
In view of specific directions, the matter was remitted back to the file
of the TPO for fresh examination.
[Source: Metro Tunneling Group; ITA No. 564/Mum/2015]
7. Transfer pricing Adjustment cannot exceed
the amount received by the AE customers and
the actual value of international transaction
between the AEs; Extraordinary
expenses/losses to be excluded for the
computation of operating profit margin during
Facts of the case
HCL Technologies BPO Service Ltd. (“the Taxpayer”), is a private limited
company engaged in providing IT enabled services (“ITeS”).
During the year under consideration, the taxpayer had entered into
the international transaction of provision of ITeS, amounting to 13.06
crores and applied Transactional Net Margin Method (“TNMM”) as
the Most Appropriate Method (“MAM”) for benchmarking its
transaction, considering itself as the tested party. Also, Operating
Profit/Total Cost was taken to be the Profit Level Indicator. The
taxpayer had conducted transfer pricing analysis by using multiple
year data of previous financial year in which data of three years was
on actual basis and for two years on project basis. For the application
of TNMM, the taxpayer identified eight comparable companies
engaged in rendering voice based/web based BPO/ITES. The
operating margin of five financial years of the comparable companies
was computed at 14.09% and that of the taxpayer was 13.56%.
Hence, the taxpayer has considered the international transaction to
be at arm’s length.
The transfer pricing officer (“TPO”) rejected the taxpayer’s approach
of using multiple year data and determined adjustment of INR 17.03
crores. Aggrieved taxpayer appealed before the Commissioner of
Income Tax (Appeals) [“CIT(A)”]. The CIT(A) accepted the taxpayer’s
plea on the grounds that the addition made by TPO cannot go
beyond the amount actually retained by associated enterprises
(“AEs”). Thereby, the CIT(A) reduced the amount of addition made
by TPO from INR 17.03 crores to INR 1.19 crores.
However, the Aggrieved with the same the Revenue filed an appeal
before the Income Tax Appellate Tribunal (“the Tribunal”/ “the
Transfer pricing Adjustment cannot exceed the amount received by
the AE from customers and the actual value of international
transaction between with its group entity
In the light of above rulings, the taxpayer submitted that appropriate
adjustment for idle capacity is required to be made while computing
its operating margin.
The Tribunal accepted the taxpayer’s submission that while
calculating the operating cost, the abnormal cost incurred on account
of start-up should be excluded and also keeping on view the
judgment of ITAT co-ordinate Bench in case of Transwitch India
(Supra), affirmed by The Delhi High court. Hence, the Tribunal
directed the Assessing Officer to re-determine the operating cost
exclusive of all the abnormal costs incurred on account of start-up
entity like rent, salary and depreciation.
Source: HCL Technologies BPO Services Limited Vs. ACIT (ITA No.
8. Limitation period of 1 year under Section 11B
of the Central Excise Act 1944 not applicable to
refund claims filed under Rule 5 of Cenvat
Credit Rules 2004
Affinity Express India Private
Limited (‘Appellant’) is engaged in
providing services under the
taxable service categories of
Business Auxiliary services and
The Appellant had filed refund claim of Rs. 26.20 lakhs (appox.) for
the period of January 2009 to March 2009 under Rule 5 of the
Cenvat Credit Rules 2004 (‘Credit Rules’) read with Notification No.
5/2006–CE(NT) dated 14 March 2006 (‘Notification’) since he was
unable to utilize the input service credit availed against the services
exported during the said period.
The Assistant Commissioner allowed the refund claim of Rs. 4.94
lakhs (approx), while rejecting the balance amount. Aggrieved by the
order of the Assistant Commissioner, the Appellant filed an appeal
before the Commissioner (Appeals), who rejected the claim of Rs.
21.23 lakhs (approx). The Appellant filed an appeal before the
Appellate Tribunal, Mumbai (‘Tribunal’) against the order of the
The Tribunal, inter-alia, observed as follows:
With respect to the denial of the refund claim on account of
limitation, the Appellant had submitted that clause 6 of the
Notification mentions that the refund claim may be filed before
the expiry of the period specified under Section 11B of the
Central Excise Act 1944 (‘Excise Act’). Further Rule 5 of the
Credit Rules permits refund of credit accumulated over a period
of time, upon a condition that the service provider is not able to
utilize the said credit on account of export of output services,
which do not attract service tax. If one looks at clause (B) to the
Explanation appended to Section 11B of the Excise Act, none of
the sub-clauses therein would apply to determine the ‘relevant
date’ for refund filed under Rule 5 of the Credit Rules. In other
words, the Notification does not throw any light on the date
from which the limitation under Section 11B of the Excise Act has
to be reckoned. Accordingly no time limit should apply for the
refund claim under Rule 5 of the Credit Rules. In any case the
period of one year should be computed from the date of receipt
of foreign exchange for the services exported and not from the date of
invoice. The Appellate Tribunal, relying on the decisions in the case of
Deepak Spinners Ltd., Elcomponics Sales Pvt. Ltd. and accepting the
submissions of the Appellant, held that no time limit would apply to
refund claim under Rule 5 of the Credit Rules and further that prior to
the date of crystallization of the right to refund, no limitation can start
Where the assessee has inadvertently indicated the turnover of a
service in the return against the column for final product, instead of
output service, the same would not disentitle them for refund, if the
following is established:
From the agreements it is established that the activity is in the
nature of service;
Actual export of the underlying service and receipt of foreign
exchange is not in dispute.
Where certain input services provided were essential and in fact
used by the Appellant to provide output services and where the
Revenue did not challenge when the Appellant claimed cenvat credit
on these input services, the same cannot be rejected while granting
[Source: M/s Affinity Express India Pvt. Ltd. v Commissioner of Central
Excise, Pune-I (Appeal no. ST/216/11)]
9. Relinquishment of property share under
family arrangement not regarded as
Facts of the case
The assessee, being an individual,
relinquished her rights in her
father-in-law’s property, which
she inherited and devolved upon
her after the death of her husband
and minor son. The consideration
for relinquishing of such share in
property in favour of her deceased
husband’s two brothers was not
offered to tax. The AO held sought
to tax the said transaction as
capital gains since it held such
relinquishment to be a transfer of a capital asset. The CIT(A) upheld
the AO’s order on the ground that relinquishing the rights in the
property inherited by the assessee amounts to transfer of a capital
asset and hence, the consideration received under the said
transaction is taxable under the head capital-gain in accordance with
provisions of Section 45 of the Act.
Issue before ITAT
Whether the consideration passed under the family settlement
taxable as long term capital gains?
M & A
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The assessee placing reliance on various judgments
contended that a settlement under a family
arrangement amongst the members cannot be
considered to be a transfer of a capital asset. The ITAT
observed that a family settlement only settles the
conflicting claims which had pre-existing joint interests,
to a separate interest and there is no conveyance or
transfer of a property, thus cannot be treated as
transfer of a capital asset.
ITAT relied on Madras HC Ruling in CIT vs Kay Arr
Enterprises & Others (2008) 299 ITR 348 wherein the
HC held that family arrangement did not attract capital
gain and allowed the assessee’s appeal stating that a
family settlement or arrangement does not tantamount
to any transfer of a title, albeit it is akin to a partition of
the family asset amongst the members, which is not
regarded as a transfer u/s 47(i) of the Act.
Mrs. Urmila Mahesh Nathani Vs ITO