Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2014 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (6) TMI 708 - AT - Income TaxTransfer pricing adjustments - associated enterprise - Nature of assessee company – Subsidiary of M/s IJM Corporation, Berhad or not – Transaction to be fall u/s 92B(2) of the Act or not – Held that:- Following M/s. Swarnandhra IJMII Integrated Township Development Company Pvt. Ltd. Versus The Deputy CIT Circle-3(3) Hyderabad [2014 (6) TMI 595 - ITAT HYDERABAD] - the transaction taken place is with domestic enterprises and at least one among the AEs are not non-resident - Both the assessee and IJMII are the residents for the purpose of Indian Taxation as they are Indian companies - Any transaction between them will not constitute an international transaction - The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more associated enterprises - Section 92A defines the term "associated enterprise" - Section 92A(1) provides the broad parameters on satisfaction of which two or more enterprises constitute associated enterprises - These parameters are participation in the management or control or capital of the other enterprise - Sub-section (2) of section 92A enlists specific situations which make two or more enterprises associates of each other for the purposes of sub-section (1). A transaction between associated enterprises satisfying the prescribed criteria becomes an international transaction - one of the essential limbs/constituents of an international transaction is "associated enterprise" - Section 92B(2) outlines the circumstances under which a transaction between two persons would be deemed to be between associated enterprises - Such deeming fiction is in addition to the one created u/s 92A(2) - The deeming fiction u/s 92A(2) are limited to the parameters of management, control or capital - Section 92B(2) travels beyond these parameters - Transaction between an enterprise and a person which is not an associated enterprise u/s 92A, may be deemed to be transaction between associated enterprises for the purposes of section 92B(l) if the conditions contained in section 92B(2) are attracted. Section 92B(2) embodies a legal fiction - It deems a transaction to have been entered into between two associated enterprises - section 92B(2) is a part of section 92B with the heading "Definition of international transaction", it is to be read as an extension of section 92A(2) and not as an extension of section 92B(1) - There is a difference between associated enterprises defined u/s 92A and transaction deemed to be between associated enterprises u/s 92B(2) – u/s 92A, two or more enterprises once determined to be associated enterprises remain so for the entire financial year - Their relationship will not change for different transactions between them - They will remain associated enterprises even if they do not have any transaction during the previous year - a transaction between an enterprise and another person can be deemed to be transaction between associated u/s 92B(2) only in respect of transactions specified and not otherwise - This fiction is transaction specific and does not apply to all transactions between the enterprise and person, on the basis that one transaction attracts section 92B(2). The intermediary would facilitate the transfer of services or goods from one enterprise to its associate enterprise with no value addition or insignificant value addition - The intermediary is used to break a transaction into two different parts, which parts when viewed in isolation would not satisfy the requirements of section 92A - The legal form of the transaction in such circumstances is ignored - The substance of the transaction is given effect to, not by disregarding the existence of the intermediary but by deeming the transaction with the intermediary itself to be one with an associated enterprise - The legal fiction created in respect of the specified transaction can be used only for the purpose of examining whether such transaction constitutes an 'international transaction' u/s 92B(1). The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs in terms of section 92A(1) and 92A(2) of the Act – the transactions between the assessee and IJMII do not fall u/s 92B(2) of the Act - the DRP simply wants to keep the matter alive, though they agreed with the assessee's counsel, and confirmed the order of the TPO (AO) – Decided against Revenue.
|