What the courts have decided on section 92, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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DIT v Morgan Stanley & Co Inc
Supreme CourtCuts both ways
Our Indian affiliate is paid at arm's length. Can more profit still be attributed to a PE?
No, provided the transfer pricing analysis takes into account all the risk-taking functions of the entity that also constitutes the permanent establishment. Anything further would tax the same profits twice. On the facts, back-office work was preparatory or auxiliary and created no fixed place or agency PE, but deputing employees to work in India created a service PE.
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Bausch & Lomb Eyecare (India) Pvt Ltd v ACIT
High CourtHelps taxpayerValidity unconfirmed
The TPO says my advertising and marketing spend built my foreign parent's brand and has added a mark-up. There is no agreement with the parent about it. Can he do that?
No. The Delhi High Court held that before Chapter X can be used at all, the Revenue must show an international transaction exists. For advertising, marketing and promotion spend that means showing an agreement, arrangement or understanding with the associated enterprise obliging the Indian company to spend excessively to promote the foreign brand. It cannot be inferred from shareholding, from the incidental benefit to the brand owner, or from the bright line test, which Sony Ericsson had already rejected. There is no machinery provision to identify or price such a transaction. The assessee's appeals were allowed and the Revenue's dismissed.
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Vodafone India Services P Ltd v Union of India
High CourtHelps taxpayerValidity unconfirmed
We issued shares to our foreign parent at a premium the Transfer Pricing Officer says is too low. Can he tax the shortfall as income under the transfer pricing provisions?
No. The Bombay High Court held that the issue of equity shares at a premium by an Indian company to its non-resident holding company is a capital account transaction that gives rise to no income, so Chapter X cannot be applied at all. Chapter X is a machinery provision for arriving at the arm's length price; the charge must be found in sections 4 and 5 and in one of the heads of income. There being no charge, express or implied, on the premium not received, the reference to the Transfer Pricing Officer, his order, the draft assessment order and the Dispute Resolution Panel's order were quashed as without jurisdiction.
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CIT v Cushman and Wakefield (India) P Ltd
High CourtCuts both waysValidity unconfirmed
The Transfer Pricing Officer says my group companies gave me no benefit and has put the arm's length price at nil. Can he decide that, and can the Assessing Officer still disallow the payment after the reference?
It depends on who is deciding what. The Delhi High Court held that the jurisdictions are distinct. The Transfer Pricing Officer determines the arm's length price of the referred transaction, and may find it to be nil if a comparable independent entity would pay nothing, but he cannot decide whether services were rendered or whether a benefit accrued - that is disallowance, and it belongs to the Assessing Officer under section 37. Equally, a reference to the Transfer Pricing Officer does not concede the deduction: the Assessing Officer can still verify whether the transactions are real, though he is bound by the arm's length price the Transfer Pricing Officer has approved. Both findings of the Tribunal were set aside and the matter remanded.
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In re Vanenburg Group B.V.
Advance RulingHelps taxpayerValidity unconfirmed
Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study?
No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.