PFA
While delay in recovery of debt from AE is an "international transaction", it is a part of the transaction of sale and its ALP has to be evaluated on an overall basis
(i) The assessee has reported international transaction in its TP report regarding sale to its AE from manufacture of jewellery units and diamond trading unit. The TPO accepted the price charged by the assessee from AE at arm's length. However, the TPO has made the adjustment on account of notional interest for the excess period allowed by the assessee to AE for realization of dues. The TPO applied 18.816% per annum as arm's length on the over due amounts of AE. The DRP though concurred with the view of the Assessing Officer/TPO on the issue of international transaction, however, the adjustment was reduced by applying the interest rate of 7% instead of 18.816% applied by the TPO.
(ii) The first issue raised by the assessee is whether the aggregate period extended by the assessee to the AE which is more than the average credit period extended to the non-AE would constitute international transaction.
(iii) We are of the view that after the insertion of explanation to section 92B(1), the payment or deferred payment or receivable or any debt arising during the course of business fall under the expression international transaction as per explanation. Therefore, in view of the expanded meaning of the international transaction as contemplated under clause (i) (e) of explanation to section 92B(1), the delay in realization of dues from the AE in comparison to non-AE would certainly falls in the ambit of international transaction. However, this transaction of allowing the credit period to AE on realization of sale proceeds is not an independent international transaction but it is a closely linked or continuous transaction along with sale transaction to the AE. The credit period allowed to the party depends upon various factors which also includes the price charged by the assessee from purchaser. Therefore, the credit period extended by the assessee to the AE cannot be examined independently but has to be considered along with the main international transaction being sale to the AE. As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregate and clubbing of closely linked transaction are permitted under said rule. This concept of aggregation of the transaction which is closely linked is also supported by OECD transfer pricing guidelines.
(iv) In order to examine whether the number of transactions are closely linked or continuous so as to aggregate for the purpose of evaluation what is to be considered is that one transaction is follow-on of the earlier transaction and then the subsequent transaction is carried out and dependent wholly or substantially on the earlier transaction. In other words, if two transactions are so closely linked that determination of price of one transaction is dependent on the other transaction then for the purpose of determining the ALP, the closely linked transaction should be aggregated and clubbed together. When the transaction are influenced by each other and particularly in determining the price and profit involved in the transactions then those transactions can safely be regarded as closely linked transactions. In the case in hand the credit period extended to the AE is a direct result of sale transaction. Therefore no question of credit period allowed to the AE for realization of sale proceeds without having sale to AE. The credit period extended to the AE cannot be treated as a transaction stand alone without considering the main transaction of sale. The sale price of the product or service determined between the parties is always influenced by the credit period allowed by the seller. Therefore, the transaction of sale to the AE and credit period allowed in realization of sale proceeds are closely linked as they are inter linked and the terms and conditions of sale as well as the price are determined based on the totality of the transaction and not on individual and separate transaction.
(v) The approach of the TPO and DRP in analyzing the credit period allowed by the assessee to the AE without considering the main international transaction being sale to the AE will give distorted result by disregarding the price charged by the assessee from AE. Though extra period allowed for realization of sale proceeds from the AE is an international transaction, however, for the purpose of determining the ALP, the same has to be clubbed or aggregated with the sale transactions with the AE. Even by considering it as an independent transaction the same has to be compared with the internal CUP available in the shape of the credit allowed by the assessee to non AE. When the assessee is not making any difference for not charging the interest from AE as well as non-AE then the only difference between the two can be considered is the average period allowed along with outstanding amount. If the average period multiplied by the outstanding amount of the AE is at arm's length in comparison to the average period of realization and multiplied by the outstanding from non AEs then no adjustment can be made being the transaction is at arm's length. The third aspect of the issue is that the arm's length interest for making the adjustment. Both the TPO and DRP has taken into consideration the lending rates, however, this is not a transaction of loan or advance to the AE but it is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan is available.
PFA
S. 5(1) r.w. Art 16(1) of DTAA: Taxability of stock options allotted outside India by foreign co to NOR employee for services rendered in India considered
When the residential status of the assessee is accepted as 'not ordinarily resident', income which accrues or arises to him outside India cannot and should not form part of the total income, unless the other conditions of proviso to section 5(1) are satisfied. Moreover, section 9(1)(ii) also makes it clear, income under the head "Salaries shall be deemed to accrue or arise in India if it is earned in India towards services rendered in India". Article 16(1) of India-USA DTAA also provides that salary derived by a resident of USA in respect of an employment exercised in USA shall be taxable in USA. Learned A.R. has also referred to the commentary on OECD model tax convention relating to taxation of stock option income derived by an employee while working in two countries which provides, employment benefit attributable to the stock option should be considered to be derived from a particular country in proportion of the number of days during which employment has been exercised in that country to the total number of days during which the employment services from which the stock option is derived is exercised. In our view, all these aspects have to be examined before coming to the conclusion that the perquisite value of stock awards are taxable in India. Furthermore, assessee's claim that stock awards amounting to Rs.44,18,625, attributable to services rendered in USA, was offered to tax in USA also needs to be looked into by examining the returns filed before the USA tax authorities, copies of which were submitted before A.O. and forms part of paper book. As it appears, neither the A.O. nor the Ld. CIT(A) have made any endeavour to examine these factual details. Only because the stock award were treated as part of salary in the TDS certificate issued in Form No.16 issued by employer, for that reason alone, it cannot be concluded that the entire stock amount is taxable in India. The information submitted by the employer under section 133(6) in letter dated 10.03.2009 also does not conclusively prove that amount received under SOTP is entirely relatable to services rendered in India. The employer has only stated that the stock awards proceeds were received by the assessee in India. Rather, in the aforesaid letter the employer has clarified that stocks were allotted to assessee when he was under employment of Microsoft Corporation, USA. Further, assessee sold the stocks to broker appointed by Microsoft, USA in the year 2003. Assessee only received the final installment of SOTP sales in financial year 2006-07. Therefore, without ascertaining how much of the SOTP is attributable to services rendered in India, the entire amount cannot be made taxable only because the money was received in India. Therefore, we are of the view that the assessee having residential status of 'not ordinarily resident', only that portion of the stock awards and SOTP attributable to services rendered in India can form part of total income for the impugned assessment year.
pfa
S. 11 (charity) and 12AA (cancellation of registration): Important propositions of law laid down
s.12AA(3) has no retrospective effect as it is neither explanatory nor clarificatory in nature and the CIT has no power to rescind the order passed by the CIT prior to 1st Oct.2004. For an assessee to be classified as charitable under the residuary category i.e. "advancement of any other object of general public utility" u/s 2(15) of the Act, the following four factors__._,_.___
No comments:
Post a Comment