| 2018-TII-INSTANT-ALL-564 | 03 May 2018 |
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CASE LAWS MEHSANA DISTRICT COOPERATIVE Vs DCIT: GUJARAT HIGH COURT (Dated: March 6, 2018) Income tax - Sections 92C, 92CA & Rule 10THB - CBDT Instructions no. 3/2016 dated Mar 10, 2016 - CBDT Circular no.5/2010 dated June 3, 2010 Keywords - ALP - eligible assessee - reference to TPO - specified domestic transactions - safe harbour rules The Assessee is a District level Cooperative Milk Producers' Union and is engaged in collection and processing of milk from the member societies who in turn would be cooperative milk societies at Village and Taluka levels. Since the assessee had entered into specified domestic transactions and was desirous of opting for safe harbour, it had applied for such purpose while filing return. During the course of scrutiny proceedings, the assessee wrote to the AO and preempted any attempt on his part of making reference to the TPO, by referring to CBDT instructions no.3/2016 dated Mar 10, 2016 and contended that the case of assessee did not fall in any other criteria for making reference. However, the AO made reference to the TPO of assessee's specified domestic transactions to ascertain the ALP, without conveying same to the assessee. When the TPO asked the assessee to produce evidence in support of computation of ALP in relation to its specified domestic transactions, the assessee pointed out that it had already opted for safe harbour. Eventually, the TPO passed an order making no adjustments for ALP. The case of the assessee was that the action of AO in referring its case to the TPO itself was wholly illegal and invalid when the assessee had applied for safe harbour and when such application was deemed to have been accepted. The assessee's further contention was that the AO had made such a reference merely to ensure extended period of limitation for completing the assessment. According to assessee, even when the TPO had not suggested any upward adjustment, such order of TPO was required to be quashed, failing which, the AO could claim extended limitation for completing the assessment which had otherwise become time-barred. On Writ, the HC held that, Whether application of safe harbour rules in relation to specified domestic transactions, if not rejected within stipulated time period by AO, will amount to deemed acceptance - YES: HC Whether reference made to TPO for determination of ALP becomes invalid, once application of safe harbour rules stood accepted by AO - YES: HC + it is noted that in order to avoid the number of transfer pricing audits and prolonged disputes, section 92CB was inserted providing for Safe Harbour Rules. As per Rule 10THA, the eligible assessee would mean a person who has exercised a valid option for application of safe harbour rules and who is either a Government company engaged in the business of generation, supply, transmission or distribution of electricity or is a cooperative society engaged in the business of procuring and marketing milk and milk products. Undisputedly, the assessee satisfied both the conditions and it had exercised valid option for safe harbour and also is a cooperative society engaged in the business of procuring and marketing milk and milk products. Sub-rule 10THC provides that where an eligible assessee has entered into an eligible specified domestic transaction in any previous years and the option exercised by said assessee is treated to be validly exercised, the transfer price declared by the assessee in respect of such transaction for that particular assessment year shall be accepted by the income tax authorities, if it is in accordance with the circumstances as specified in sub-rule(2). It is not the case of AO that in case of assessee, the circumstances referred to in sub-rule(2) of rule 10THC were not satisfied and that therefore, despite the assessee's application for safe harbour, the price indicated by the assessee could be rejected; + it is to be noted that as per Sub rule(8) of Rule 10THD, if the AO or the Pr CIT or the Pr Director, as the case may be, does not pass an order within the time specified in sub-rule (7), then the option for safe harbour exercised by the assessee shall be treated as valid. In the present case, admittedly, after the assessee exercised such an option, the AO passed no order under sub-rule(4) of rule 10THD declaring that the exercising of option was invalid. In terms of sub-rule(7) and sub-rule(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 TPO regime would not apply. That being the case, the AO had no authority to make any reference to the TPO to ascertain the arm's length price of the assessee's specified domestic transactions. Resultantly, the order passed by TPO on such invalid reference is set aside. Assessee's petition allowed ADDL DIT Vs ZEE TV USA INC: MUMBAI ITAT (Dated: April 23, 2018) Income tax - Sections 195 & 234B Keywords - business income - PE - interest payable by non resident - tax at source The Revenue Department preferred present appeal challenging the action of CIT(A) in holding that the assessee did not have PE in India and accordingly its business were not taxable in India. In addition, the Department also challenged the action of CIT(A) in holding that no interest u/s 234B was payable by a non-resident whose total income was subject to deduction of tax at source. On appeal, the ITAT held that, Whether when transactions between Assessee and its overseas AE were found at ALP, no further income chargeable to tax in India should be attributed to PE of Assessee - YES: ITAT + it is found that similar issue came up before the Coordinate Bench for the A.Y. 2007-08 wherein the alternative contention of the assessee that income of the assessee is not chargeable to tax in India as the assessee has paid arm's length remuneration/commission to its agent in India which was taxed in India, has been accepted following the decision of Supreme Court in the Case of CIT v. E-funds I.T. Solutions Inc., while holding so the Coordinate Bench observed that once no income chargeable to tax in India is attributable to the assessee for the reason that the transaction between the assessee and its AE has been found at arm's length price, no further income chargeable to tax in India can be said to be attributable on account of PE. Respectfully following this decision, it is held that since transactions between the assessee and its AE have been found at arm's length prices no further income chargeable to tax in India can be said to be attributable for the PE of the assessee. Revenue's appeal dismissed |
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