Section 92F

Section 92F — the law in short

What the courts have decided on section 92F, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• Bausch & Lomb Eyecare (India) Pvt Ltd v ACIT High CourtHelps taxpayerUnder appeal
  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.
• Statutory position — section 10(4D): what a specified fund in an IFSC is exempt on, and how much of it survives the non-resident test CBDT Circulars & InstructionsCuts both ways
  Our Category III AIF is registered in GIFT City and some of its unit holders are Indian residents. What exactly is exempt under section 10(4D)?
  Section 10(4D) exempts income of a specified fund of four described kinds — income from the transfer of a capital asset referred to in section 47(viiab) on a recognised stock exchange located in an IFSC where the consideration is paid or payable in convertible foreign exchange; income from the transfer of securities other than shares in a company resident in India; income from securities issued by a non-resident, not being a permanent establishment of a non-resident in India, where that income does not otherwise accrue or arise in India; and income from a securitisation trust chargeable under the head 'Profits and gains of business or profession'. The exemption runs only 'to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India) or is attributable to the investment division of offshore banking unit', computed in the prescribed manner.
• Statutory position — s.115BAE: the 15 per cent regime for new manufacturing co-operative societies, and the absence of case law CBDT Circulars & InstructionsCuts both waysNo later treatment found
  A new manufacturing co-operative society wants the 15 per cent rate. What does s.115BAE require, and is there any decided case on it?
  Section 115BAE, inserted by the Finance Act 2023 with effect from 1 April 2024, taxes a resident co-operative society at 15 per cent from AY 2024-25 if it was set up and registered on or after 1 April 2023 and commenced manufacturing or production of an article or thing on or before 31 March 2024, and if the other conditions in sub-section (2) are met. No judicial decision on the section is recorded — no High Court, Tribunal or Supreme Court authority on s.115BAE — and this entry states the statute, not case law.
• Statutory position — s.115BAB(2) conditions, the Form 10-ID option and the s.115BAB(6) more-than-ordinary-profit adjustment CBDT Circulars & InstructionsCuts both ways
  My client wants the 15 per cent rate for a new manufacturing company. What exactly must it satisfy, and what is the exposure once it is in?
  Section 115BAB requires that the company was set up and registered on or after 1 October 2019 and commenced manufacturing or production of an article or thing on or before 31 March 2024, that it is not formed by splitting up or reconstruction, that it uses no previously used machinery or plant and no building previously used as a hotel or convention centre in respect of which s.80-ID was claimed, that it carries on no business other than manufacture or production and research in relation to, or distribution of, what it makes, and that its total income is computed without the excluded deductions. The option is exercised under s.115BAB(7) in Form 10-ID on or before the s.139(1) due date for the first return, and once exercised it cannot be withdrawn for that or any other previous year.
• Statutory position — s.92CE(1): the FIVE gateways into a secondary adjustment, the one crore threshold, the AY 2016-17 cut-off, and the word "and" that was retrospectively replaced by "or" CBDT Circulars & InstructionsCuts both ways
  The TPO's order says I must now make a secondary adjustment. Which primary adjustments actually trigger s.92CE, and is there any threshold or year below which the section simply does not apply to me?
  Section 92CE(1) is triggered by a primary adjustment to transfer price arising in any one of FIVE ways — made suo motu by the assessee in his return; made by the Assessing Officer and accepted by the assessee; determined by an advance pricing agreement entered into under s.92CC on or after 1 April 2017; made under the safe harbour rules framed under s.92CB; or arising from a resolution under the mutual agreement procedure under an agreement entered into under s.90 or s.90A. In any of those cases "the assessee shall make a secondary adjustment". The first proviso then takes the case out of the section altogether if EITHER (i) the amount of primary adjustment made in any previous year does not exceed one crore rupees, OR (ii) the primary adjustment is made in respect of an assessment year commencing on or before 1 April 2016. The word joining those two limbs was originally "and"; it was substituted by "or" by Act No. 23 of 2019 with retrospective effect from 1 April 2018, and that single word is what makes the exclusions workable.
• Statutory position — rule 10B(3): the Income-tax Rules expressly contemplate a comparability adjustment and prescribe NO method for computing one — a proved negative across rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA and s.92F, with nothing in any CBDT circular, instruction or departmental transfer pricing page either CBDT Circulars & InstructionsCuts both ways
  The Transfer Pricing Officer has thrown out my working capital adjustment saying there is no prescribed method for it. Is he right that there is no prescribed method, and if he is, what does that do to the claim?
  He is right on the first half and wrong on the second. No provision of the Income-tax Rules, 1962 prescribes a formula, a base, a period, a source of interest rates or any other method for computing a working capital adjustment or a risk adjustment. Rules 10A, 10AB, 10B, 10C, 10CA, 10D and 10TA have each been read in full, and s.92F, and none of them does. But the absence of a method is not the absence of a power. Rule 10B(3) reads: "An uncontrolled transaction shall be comparable to an international transaction or a specified domestic transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." The two limbs are joined by "or", and limb (ii) is an express statutory contemplation of the adjustment. Rule 10B(1)(e)(iii) goes further inside the net margin method itself: the net profit margin arising in comparable uncontrolled transactions "is adjusted to take into account the differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market" — the words are "is adjusted", not "may be adjusted". Rule 10C(2)(e) makes "the extent to which reliable and accurate adjustments can be made to account for differences" a statutory factor in selecting the most appropriate method, and rule 10D(1)(j) and (l) require the assessee to keep a record of "adjustments, if any, which were made to account for differences" and "details of the adjustments, if any, made to transfer prices". So the Rules name the adjustment four times over and never once say how to work it out. The expression "reasonably accurate" is not defined anywhere that has been found: not in rule 10A, which is the definitions rule for rules 10A to 10E, and not in s.92F, which is the definitions section for ss.92 to 92E.
• Statutory position — section 94A: the consequences of dealing with a person located in a notified jurisdictional area, and whether any area is notified today CBDT Circulars & InstructionsCuts both ways
  My client is remitting money to a company in a low-tax jurisdiction. Does section 94A apply, and is any country actually notified as a notified jurisdictional area at the moment?
  Section 94A lets the Central Government notify a country or territory as a notified jurisdictional area having regard to the lack of effective exchange of information, and once notified the consequences are severe and automatic: all parties to a transaction with a person located there are deemed associated enterprises, the transaction is deemed an international transaction so the entire transfer-pricing machinery applies, deductions are barred unless prescribed authorisations and documents are furnished, unexplained receipts from such a person are deemed to be income, and withholding is at the highest of the rate in force, the rate in the relevant provision and thirty per cent. The only notification under section 94A(1) that could be located was Notification No. 86/2013 notifying Cyprus, and it was rescinded by Notification No. 114/2016 with retrospective effect from 1 November 2013. No subsisting notification was found and no departmental list of notified jurisdictional areas could be opened, so nothing here certifies that no jurisdiction is notified today — section 94A should be neither treated as live against a jurisdiction nor written off as a dead letter without checking the current list.
• Statutory position — section 44DA: royalty and fees for technical services effectively connected with a permanent establishment, and the second proviso that shuts section 44BB out from 1 April 2011 CBDT Circulars & InstructionsCuts both ways
  Our foreign company earns fees for technical services from an Indian oil company and we have a permanent establishment here. We have always returned the income at 10 per cent under section 44BB. The Assessing Officer says section 44DA applies instead. When did that change, and what does section 44DA require us to do?
  It changed with the Finance Act 2010, with effect from 1 April 2011, which inserted a second proviso to s.44DA(1) reading "Provided further that the provisions of section 44BB shall not apply in respect of the income referred to in this section." Section 44DA(1) applies where royalty or fees for technical services are received from Government or an Indian concern under an agreement made after 31 March 2003, the non-resident or foreign company carries on business in India through a permanent establishment or performs professional services from a fixed place of profession, and the right, property or contract in respect of which the royalty or fees are paid is effectively connected with that permanent establishment or fixed place; the income is then computed under "Profits and gains of business or profession" in accordance with the provisions of the Act — that is, on a net basis — and s.44DA(2) requires books under s.44AA, an audit by an accountant within the meaning of the Explanation below s.288(2), and the audit report furnished along with the return.
• Statutory position — s.286 with Rule 10DB: country-by-country reporting — who notifies in Form 3CEAC, who files the report in Form 3CEAD within twelve months, when the burden falls on the Indian constituent entity instead, and the alternate reporting entity route out CBDT Circulars & InstructionsCuts both waysNo later treatment found
  We are the Indian subsidiary of a foreign parent. Do we have to file a country-by-country report ourselves, or only tell the department who does, and by when?
  Two obligations, and they fall on different people. Under s.286(1), EVERY constituent entity resident in India whose parent entity is not resident in India must notify the prescribed authority whether it is the alternate reporting entity of the international group, or else give the details of the parent entity or alternate reporting entity and the country of which they are resident. Rule 10DB(2) requires that notification in Form No. 3CEAC, and it must be made TWO MONTHS PRIOR to the due date for furnishing the report under s.286(2). Under s.286(2), a parent entity or alternate reporting entity RESIDENT IN INDIA must furnish the report itself, "within a period of twelve months from the end of the said reporting accounting year", and Rule 10DB(3) prescribes Form No. 3CEAD for it. Under s.286(4), the burden shifts on to an Indian constituent entity that is not the reporting entity where the parent is resident in a country that does not require such a report, or with which India has no exchange agreement, or where a systemic failure has been intimated; Rule 10DB(4) gives it twelve months from the end of the reporting accounting year, or six months from the end of the month in which a systemic failure was intimated. The proviso to s.286(4) lets a group with several Indian constituent entities designate one to file, and Rule 10DB(5) requires that designation to be conveyed in Form No. 3CEAE. Section 286(5) provides a complete escape from sub-section (4) where an alternate reporting entity has filed the report with its own country's tax authority and five conditions are all satisfied, including that the said country has an exchange agreement with India and that the prescribed authority here has been informed under sub-section (1). Section 286(6) lets the prescribed authority call for information to test the accuracy of the report, by notice, within thirty days, extendable by a further period not exceeding thirty days on an application.

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.