Wednesday, October 21, 2015

[aaykarbhavan] Judgements and Information [6 Attachments]





The CBDT has issued a press release stating that the Rules for determining ALP have been amended to allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysis in transfer pricing cases. The amended regime will be applicable for computation of ALP of international transactions and specified domestic transactions undertaken on or after 1/04/2014.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
PRESS RELEASE
New Delhi, 20th October, 2015
Subject: Notification of Transfer Pricing Rules to incorporate "range concept" and "use of multi-year data" to reduce litigation on transfer pricing issues.
The Income-tax Act provides for determination of income having regard to Arm's Length Price (ALP) in case of international transactions and specified domestic transactions. The provisions of the Income-tax Act were amended through the Finance (No.2) Act, 2014 to facilitate alignment of Indian transfer regime with international best practices.The manner of computation of ALP is laid down Income-tax Rules.
The Government has notified the amended Rules for determining ALP vide S.O. No. 2860 (E) dated 19/10/2015. The amended regime will be applicable for computation of ALP of international transactions and specified domestic transactions undertaken on or after 1/04/2014.
The amended rules allow for introduction of a "range concept" for determination of ALP and "use of multiple year data" for undertaking comparability analysis in transfer pricing cases. The use of range concept, being a statistical tool, enhances the reliability of analysis undertaken for computation of ALP. The range concept will be applicable in certain cases for determining the price and will begin with the 35th percentile and end with the 65th percentile of the comparable prices. Transaction price shown by the taxpayers falling within the range will be accepted and no adjustment will be made.The use of multiple year data allows for yearly variations to be averaged out and would therefore add value to transfer pricing analysis.
The amended rules would therefore provide clarity in determination of price in transfer pricing cases and reduce disputes on transfer pricing issues. It is a part of the Government's continuing initiative of providing a stable and certain direct tax regime.
The Notification is available on the website of the Department incometaxindia.gov.in.
(Shefali Shah)
Pr. Commissioner of Income Tax (OSD)
Official Spokesperson, CBDT

Directs Sonipat Distributor (FMCG) Association to amend bye-laws creating market-entry barriers, depriving consumer of choice

CCI confirms Director General's (DG) report, issues cease and desist notice to Sonipat Distributor (FMCG) Association (an association of distributors and stockist etc. (FMCG) of Sonipat and surrounding areas, 'the Association') for foreclosing competition & hindering entry of new market entrants in Sonepat FMCG market; Observes that as per bye-laws of the Association any new dealer before starting any work with a company shall have to seek permission (NOC) from the old dealer, holds that "The requirement to obtain NOC by a newly appointed distributor before starting of a business creates entry barriers besides limiting and controlling the supply of services";  Further observes that the Association dictated its members to limit their sale only in the areas allocated to them, holds that such geographical restraint "will not only lessen the competition but will also deter otherwise efficient entities into the market.. it deprives the end-consumer of wider choice which would have been available in the market but for the bye-laws"; States that though distributors/ dealers have right to form associations within the constitutionally circumscribed limits, their conduct and decisions including the rules which are binding upon the members have to abide by the laws of the land including the provisions of Competition Act, thus, directs the Association to amend its bye laws; However, CCI rejects portion of ​DG's report pertaining to conduct of manufacturer of ayurvedic products (whose products are sold by distributor-members of the association) whereby manufacturer ​was held to be guilty of limiting market, holds that in presence of various brands in FMCG market (mainly in hair ​oil segment) like Parachute, Dabur etc, restraint by manufacturer would be unlikely to affect the inter-brand competition in the market :CCI

The Order was passed by Shri. Ashok Chawla (Chairperson), Shri. S. L. Bunker, Shri. Augustine Peter and Shri. M. S. Sahoo (Members).
Advocate R. D. Makheeja and Mr. Ghanshyam Dass Vij argued for Informant, while Advocates Pawan Sharma, Anuj Shah and Robin Kumar represented Opposite Parties.

National Agricultural Cooperative Marketing Federation of India Ltd vs. JCIT (ITAT Delhi) (Special Bench)

COURT:
CORAM: , ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL: ,
DATE: October 16, 2015 (Date of pronouncement)
DATE: October 21, 2015 (Date of publication)
AY: 2001-02, 2002-03
FILE: Click here to download the file in pdf format
CITATION:
S. 37(1): If a claim of damages and interest thereon is disputed by the assessee in the court of law, deduction cannot be allowed for the interest claimed on such damages
The Special Bench had to consider whether where claim of damages and interest thereon is disputed by the assessee in the court of law, deduction can be allowed for the interest claimed on such damages while computing business income. HELD by the Special Bench:
(i) Under the mercantile system of accounting, an assessee gets deduction when liability to pay an expense arises, notwithstanding its actual quantification and discharge taking place subsequently. The relevant criteria for the grant of a deduction is that the incurring of liability must be certain. If the liability itself is uncertain, it assumes the character of a contingent liability and ceases to be deductible. Thus, a deduction can be allowed only when an assessee incurs liability to pay an amount in the nature of an expense. The aspect of incurring a liability needs to be understood in a correct perspective. It is here that a distinction between a contractual and a statutory liability assumes significance. A statutory liability is incurred on a mere issuance of a demand notice against the assessee and becomes deductible at that point of time. The factum of the assessee raising a dispute against such a demand does not ruin the incurring of liability. On the contrary, a contractual liability is not incurred on a mere raising of demand by a claimant. It arises only when such a claim is either acknowledged or in a case of non-acceptance, when a final obligation to pay is fastened coupled with the claimant acquiring a legal right to receive such an amount. Unless the claimant acquires an enforceable right to receive, it cannot be said that the first person has incurred a liability to pay such an amount. To put it simply, in the case of a contractual dispute between the parties, liability of the assessee to pay arises only when the claimant against the assessee acquires some legal right to receive the amount. In the absence of the vesting of any such right in the claimant, neither he earns any income nor the assessee incurs a corresponding liability to pay, entitling him to claim deduction for the same. Crux of the matter is that except for the assessee accepting a contractual claim, his liability to pay does not arise until some legal obligation to pay is fixed on him. A legal obligation to pay is attached on an assessee when a competent court passes order and a suit is decreed against him and not during the pendency of litigation. This difference between a contractual and a statutory liability has been recognized by the Hon'ble Delhi High Court in assessee's own case since reported as
National Agricultural Co-operative Marketing Federation of India Ltd. vs. CIT (2011) 338 ITR 36 (Del).
(ii) On facts, the ld. Single Judge of the Hon'ble Delhi High
Court vide his judgment and decree dated 28.1.2000 directed, inter alia, the payment of interest to Alimenta at 11.25% up to the date of award as allowed by FOSFA and at 18% from the date of award till the date of realization. It is undisputed that no payment of the principal amount of damages or interest has so far been finally made, except for furnishing bank guarantees etc. to some extent. The assessee filed a letters patent appeal against the judgment and decree of the ld. Single Judge. The Division Bench, during the pendency of such an appeal, vide its interim
order dated 28.2.2001 stayed the execution of the judgment of ld. Single Judge. Certain interim orders were passed by the Hon'ble Supreme Court and the Hon'ble Delhi High Court, but the stay on the order and decree of the ld. Single Judge was not disturbed, which continued till the ld. third Judge (on a difference of opinion between the two ld. Judges who heard the appeal) finally decided the appeal of the assessee vide its judgment dated 6.9.2010 holding that a letters patent appeal is not maintainable against the judgment dt. 28.1.2000 of the ld. Single Judge. A consequential judgment was passed in September, 2010. Effect of this judgment is that the stay order of the Division Bench passed on 28.2.2001 got vacated and the judgment and decree of ld. Single Judge dt. 28.1.2000 again came to be revived. On 17.1.2012, the Hon'ble Supreme Court rejected the prayer of the assessee for interim relief and gave liberty to Alimenta to enforce decree dated. 28.1.2000 passed by the ld. Single Judge of the Hon'ble Delhi High Court. This sequence of events transpires that the legally enforceable liability against the assessee to pay interest at the rate of 18% to Alimenta, which was created by the decree of the ld. Single Judge dated 28.1.2000, remained suspended from the date of stay granted by the Division bench of the Hon'ble High Court on 28.2.2001. It is only on the passing of the consequential judgment and decree by the Hon'ble Delhi High Court in September, 2010, subject to certain stays etc. granted against the operation of this judgment, that the assessee incurred a legally enforceable liability to pay such interest to Alimenta.
(iii) Now the moot question is whether the assessee is entitled to deduction for interest at the rate of 18% decreed by the ld. Single Judge of the Delhi High Court in the computation of income for the years under consideration. The answer will be in affirmative if the assessee had any legal obligation to pay such interest during the years in question and vice versa. We can do this by ascertaining if any legally enforceable liability existed against the assessee to pay interest in the years under consideration. Per contra, was Alimenta legally entitled to receive such interest income during the years in question? It is patent that the stay order against the judgment and decree of the ld. Single Judge was passed by the Division Bench on 28.2.2001, which is well within the financial year relevant to the assessment year 2001-02 under consideration and remained operative in subsequent years including the immediately succeeding year in appeal. This shows that the assessee did not have any legal obligation to pay interest during these two years. The hitherto obligation which was created by the judgment of the ld. Single judge against the assessee was eclipsed and frustrated by the later judgment of the Division bench and such obligation ceased to exist for the time being.
(iii) Unless there is a specific contrary provision, deduction for an expense can be allowed in the year in which liability to pay finally arises. Once a person has not voluntarily accepted a contractual obligation and further there subsists no legal obligation to pay qua such contractual claim at a particular time, it cannot be said that the person incurred any liability to pay at that point of time so as to make him eligible for deduction on that count. Notwithstanding the fact that obligation relates to an earlier year, the liability to pay arises only in the later year, when a final enforceable obligation to pay is settled against that person. In our considered opinion, there is no qualitative difference between the two situations, viz., first, in which no enforceable liability to pay is created in the first instance, and second, in which though the enforceable liability was initially created but the same stands wiped out by the stay on the operation of such enforceable liability. In both the situations, claimant remains without any legal right to recover the amount and equally the opposite party without any legal obligation to pay the same. Neither any income accrues to the claimant, nor any deduction is earned by the opposite party. We are instantly confronted with the second type of situation in which the obligation created against the assessee by the judgment of the ld. Single Judge on 28.1.2000 was stayed by the judgment of the Division Bench on 28.2.2001, which position continued till the decree on the judgment dt. 6.9.2010 reviving the judgment of the ld. Single Judge, became enforceable. Even though the crystallization of liability of the assessee to pay interest pursuant to the developments after 6.9.2010 also covers earlier years including the years under consideration, but such liability of the assessee became due only on the acquisition of right by Alimenta to enforce the decree issued on the advent of the judgment dated 6.9.2010. Consequently, the assessee can claim deduction for such interest only at such a later stage and not during the years under consideration.
(iv) In view of the foregoing reasons, we answer the question posted before this Special bench in negative by holding that in the facts and circumstances of the case, where claim of damages and interest thereon is disputed by the assessee in the court of law, deduction can't be allowed for the interest claimed on such damages in the computation of business income.

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National Agricultural Cooperative Marketing Federation of India Ltd vs. JCIT (ITAT Delhi) (Special Bench)

by editor
Once a person has not voluntarily accepted a contractual obligation and further there subsists no legal obligation to pay qua such contractual claim at a particular time, it cannot be said that the person incurred any liability to pay at that point of time so as to make him eligible for deduction on that count. Notwithstanding the fact that obligation relates to an earlier year, the liability to pay arises only in the later year, when a final enforceable obligation to pay is settled against that person. In our considered opinion, there is no qualitative difference between the two situations, viz., first, in which no enforceable liability to pay is created in the first instance, and second, in which though the enforceable liability was initially created but the same stands wiped out by the stay on the operation of such enforceable liability. In both the situations, claimant remains without any legal right to recover the amount and equally the opposite party without any legal obligation to pay the same

CIT vs. Escorts Limited (Delhi High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL: , ,
DATE: February 12, 2015 (Date of pronouncement)
DATE: October 21, 2015 (Date of publication)
AY: -
FILE: Click here to download the file in pdf format
CITATION:
Making allegations of fraud against Dept's Counsel and claiming that they deliberately presented weak case seeks to prejudice and interfere with due course of judicial proceedings & prima facie constitutes criminal contempt of court
On 15.01.2015, the Court noted by its order that Sh. Rakesh Kumar Gupta's intervention application was rejected. He, however, sent an e-mail to counsel appearing on behalf of the Revenue, levelling several allegations which were shown to the Court. In the course of hearing, the Court pointed this out to Sh. Rakesh Kumar Gupta, who stated that he would be withdrawing the allegations levelled against the Revenue's counsel. However, after the conclusion of hearing, on 09.02.2015, Sh. Gupta filed yet another affidavit titled as "Intervener Affidavit". In the affidavit, after stating that the intervener informed this Court in the hearing that the Income Tax Department had "deliberately presented weak case", and quoting the order dated 16.10.2014, other averments were made including that the "To help the tax payer, terms was used incomplete assignment instead of illegal assignment". When Sh. Gupta was asked whether he wishes to unconditionally withdraw the affidavit and the allegations, to which he agreed conditionally. The condition proposed by him was that even whilst he was willing to withdraw the affidavit and the allegations with respect to the Standing Counsel and the conduct of the case before this Court, he would feel free to press those allegations elsewhere. He also stated that he had no desire and did not wish to withdraw any other allegations against the officers or the officials of the Income Tax Department, the CIT (Appeals) and the department generally, and that the allegations of fraud etc. against the assessees should remain as a matter of record. HELD by the Court:
(i) The Court is of the opinion that given the nature of the conduct displayed by Sh. Gupta, i.e. preferring an application for intervention which was rejected; thereafter engaging in e-mail communications with the Standing Counsel and leveling allegations against them; addressing e-mails directly to this Court and finally, placing on record an affidavit detailing the allegations even while stating that he would withdraw some of them vis-a-vis the Standing Counsel, but would nevertheless press those allegations against the same individuals elsewhere, prima facie amounts to criminal contempt punishable in accordance with law. This Court has been informed that two of the Standing Counsels – Sh. Balbir Singh and Sh. Rohit Madan, who had previously appeared, have already recused themselves from the matter. The behaviour outlined above amounts to seeking to prejudice and interfere or tending to interfere with the due course of proceedings in the present appeals;
(ii) The Court is of the opinion that consequently appropriate action and further proceedings under Section 15 of the Contempt of Courts Act, 1971 is warranted. In the circumstances, Sh. Rakesh Kumar Gupta is issued with Show Cause Notice, returnable on 09.04.2015 to give his explanation why he should not be proceeded with under Section 15 of the Contempt of Courts Act, 1971 in respect of the above allegations. The notice shall also annex a copy of this order and the copy of the Intervener Affidavit filed by him. The Registry is directed to register a separate criminal contempt proceeding and file the originals of the Intervener Affidavit which is part of the record in ITA No.1428/2006 in the said criminal contempt proceedings. Besides, the Registry shall place on record a copy of the e-mail and fax communication numbering 100 pages which was addressed by Sh. Rakesh Kumar Gupta directly to this Court. These shall be annexed along with the Show Cause Notice to be served upon Sh. Rakesh Kumar Gupta on the next returnable date, i.e. 09.04.2015. Sh. Rakesh Kumar Gupta is present in Court and has been apprised of this order.

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CIT vs. Escorts Limited (Delhi High Court)

by editor
The Court is of the opinion that given the nature of the conduct displayed by Sh. Gupta, i.e. preferring an application for intervention which was rejected; thereafter engaging in e-mail communications with the Standing Counsel and leveling allegations against them; addressing e-mails directly to this Court and finally, placing on record an affidavit detailing the allegations even while stating that he would withdraw some of them vis-a-vis the Standing Counsel, but would nevertheless press those allegations against the same individuals elsewhere, prima facie amounts to criminal contempt punishable in accordance with law. This Court has been informed that two of the Standing Counsels – Sh. Balbir Singh and Sh. Rohit Madan, who had previously appeared, have already recused themselves from the matter. The behaviour outlined above amounts to seeking to prejudice and interfere or tending to interfere with the due course of proceedings in the present appeals


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