Tuesday, October 1, 2013

Transactions among Indian subsidiaries pursuant to contract with their parent co’s out of purview of TP

Assessee sold its medical imaging business to another Indian Co. namely, 'C' Ltd. in pursuance of a transaction whereby holding co. of assessee sold its imaging business to holding co. of 'C' on global basis. Both transactions were independent of each other, therefore, revenue authorities were not justified in making TP adjustment to such transaction.

In the instant case, assessee, an Indian company sold its medical imaging business to ‘C’, Indian company disclosing sale transaction as normal domestic transaction. On perusal of documents, AO concluded that such transaction was on global basis, wherein holding company of assessee sold its imaging business to C Inc. TPO proceeded to determine ALP based on worldwide revenue break up amongst countries submitted by assessee.

The Tribunal held as follows:

a) It was undisputed that the transaction involved two domestic companies who were individual and independent subsidiaries of their own and independent holding companies;

b) Transaction could only become international transaction, if either both of the associated enterprises (‘AE’) or one of the AEs was non-Resident.

c) As per the wordings of section 92B, there had to be an AE, with whom there existed international transaction, only then it could be examined as to whether international transaction with ‘such other person’ existed or not;

d) Transactions entered into by holding foreign companies and subsidiary Indian companies were independent of each other. Though the instant transaction was as a consequence of the global agreement entered into by the holding companies, yet the entire exercise of transfer of imaging segment was independently done on its own terms by the assessee and the other party, i.e, 'C' India.

No element of international transaction was involved in sale of imaging segment by assessee of its business to C and it was purely a domestic transaction.

f) Therefore, the impugned adjustment made by revenue authorities was to be set aside - Kodak India v. Addl.CIT [2013] 37 taxmann.com 233(Mumbai –Trib.)

Where assessee had no tax incidence but otherwise was liable to tax in the UAE, benefits of India-UAE DTAA were applicable

In the instant case the assessee, a resident of the UAE, was engaged in the business of shipping.  It claimed that Article 8 of the India-UAE treaty would be applicable to it. The AO, however, held that the assessee was not eligible for treaty benefit. He, therefore, invoked the provisions of section 44B and computed the presumptive profit on total receipt. On appeal, the CIT (A) deleted the order of the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held as under:

1) The revenue’s contention was that since the assessee had not paid taxes in the UAE, there could be no curtailment of tax liability, by pressing the treaty. The reason could being that DTAA applies on juridical double taxation, i.e., if income was not taxed in one State, then it would be taxed in full in the other, if it was otherwise taxable, without granting any benefit of the Treaty;

2) This argument couldn’t be sustained, because the assessee was 'otherwise liable to tax' in UAE. Simply because there was no tax incidence in the UAE, didn’t mean that the assessee ceased to be otherwise liable to tax as per Article 4 of India-UAE treaty;

3) Treaty becomes applicable once the assessee gets within the expression 'otherwise liable to tax' in Treaty. Therefore, the order of CIT (A) was to be set aside and the AO was to be directed to consider the nature of income in issue and, consequently, the availability of Article 8 of the India UAE Treaty – ADIT v. Simatech Shipping Forwarding LLC [2013] 37 taxmann.com 232 (Mumbai - Trib.)