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Ministry
of Finance
Relevant Tax Cases
Galileo International Inc. v. Director of Income Tax
This court ruling has determined that challenges
dealing with the attribution of profits to permanent establishments in India
should not be heard by the high court, and that India’s tribunals has final
say on the issue. This decision is likely to have an influence on taxpayers
determining whether to carry on with a tax dispute against the tax
authorities since no legal matters can occur if a tribunal's conclusions on
attribution of income are based upon pertinent information which cannot be
challenged.
Sony
Private India Ltd. v. Delhi Income Tax Appellate
In this ruling, the Income Tax Appellate
Tribunal ("ITAT") spells out that India's transfer price regulations take
account of safe harbor, even though the regulations do not expressly refer
to one. The tribunal held that any taxpayer may choose the option of
determining the appropriate transfer price by making adjustments within a 5
percent range of the uncontrolled price. The tribunal relied on
another case in making its decision, the Kolkata ITAT's ruling in
Development Consultants Pvt. Ltd. v. DCIT, which was the first to uphold
the 5 percent safe harbor.
Philips Software v. ACIT
The Bangalore ITAT held that any monetary
exchange from a related party transaction, no matter how small, requires
that a comparable be rejected. The tribunal set aside the transfer
pricing assessment for 2003-2004 because the transfer pricing officer
inappropriately disregarded the taxpayer's transfer pricing study and
replaced it with his own because the officer did not examine the taxpayer's
use of the cost plus method and the choice of database used to acquire
comparables.
E-Gain Private Ltd. v. Income Tax Officer
The Pune ITAT held that the size and scope of
operations, stage and business, or product cycle should be considered in
determining comparability. This is in contrast to Mentor Graphics
Pvt. Ltd. v. DCIT, in which the Delhi ITAT said turnover is not a
relevant criterion for comparables selection.
SET
Satellite (Singapore) Private Ltd. v. DDIT
The Mumbai High Court held that an agency
permanent establishment that was paid arm's length prices by its foreign
principal would have no further profits attributed to it in India. In
contrast, in
Rolls Royce Plc v. Dep. Director of Income Tax the Delhi ITAT attribute
an extra 35 percent of sales profit to the agency PE for its marketing
activities.
Other Resources
Authority for Advance Rulings Rules on Transfer Pricing Provisions
The Authority for Advance Rulings held that
transfer pricing provisions are only computational provisions and in the
absence of tax charges under the Income Tax Act, 1961, transfer pricing
provisions are not applicable.
November 30, 2009
Description
of Documentation Requirements
Contributed by Dinesh Verma, Commissioner of
Income Tax, Mumbai
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