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Transcend MT Services Pvt Ltd Versus Assistant Commissioner of Income Tax Circle 16 (1) , New Delhi

Applicability of transfer pricing provisions - 100% EOU working under STP scheme - whether the transfer pricing provisions cannot be invoked in this case even though admittedly there is no, and there cannot be any, tax avoidance motive in such a situation. - Held that:- the issue is covered against the assessee by the Special Bench decision in the case of AZTEC SOFTWARE AND TECHNOLOGY SERVICES LTD [2007 (7) TMI 50 - ITAT BANGALORE] , yet he prays for constitution for an even larger bench of seve .....

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Kumar, AM: 1. This is an appeal, filed by the assessee, challenging the arm s length price adjustment of ₹ 1,74,03,385 made by the Assessing Officer, in the assessment order passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961, for the assessment year 2006-07 2. When this appeal was called out for hearing, learned counsel for the assessee raised a preliminary objection that since the assessee appellant is a unit exempt from income tax under section 10A, the transfer pricing .....

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tecnooggy enabled services and undertakes IT enabled back office medical transcription service exclusively for its AE. The assessee is a 100% export oriented unit under the software technology park scheme, and enjoys a tax holiday under section 10A of the Act. The short issue requiring our adjudication, on these facts, is whether the transfer pricing provisions cannot be invoked in this case even though admittedly there is no, and there cannot be any, tax avoidance motive in such a situation. 4. .....

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national transactions is to be computed but when income so arising is exempt from tax, there cannot be any occasion to invoke the transfer pricing provisions which remain confined to the income, in fact taxable income, arising from international transactions. In a situation in which income of the assessee is exempt from tax under section 10A, according to the learned counsel, there cannot be any occasion for erosion of Indian tax base, which was sought to be checked by the transfer pricing provi .....

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. He emphasizes that the settled legal position is that the provisions of Section 10 provide a tax exemption, and not a tax deduction. In support of this proposition, our attention is invited to the judgment of Hon ble jurisdictional High Court in the case of CIT Vs Kei Industries Ltd [(2014) 361 ITR 36 (Del)] and of Hon ble Karnataka High Court in the case of CIT Vs Yokogawa India Ltd [(2012) 341 ITR 385 (Kar)]. He then relies upon a press release, on the union cabinet decision, dated 28th Jan .....

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rt of the proposition that where two interpretations are possible- one which would preserve the and save constitutionality of the particular provision while the other would render it unconstitutional and void, the one which saves and preserves the constitutionality should be adopted and the other should be rejected. He then refers to Article 14 of the Constitution of India and takes plain to explain as to how the transfer provisions being applied to the situations of tax exempt incomes violates .....

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tional relation to the object ought to be achieved by the legislation in question. The transfer pricing provisions being applies to the situation in which income is exempt from tax, according to the learned counsel, does not fulfil the second criterion set out above, and, is, therefore, unconstitutional. We are thus urged to ignore the Special bench decision and, in the light of the above legal principles, hold that the transfer pricing provisions donot apply to the situation in which income com .....

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the issue, decides this issue once again in favour of the assessee. He takes us through this decision and urges us not to deviate from the same. Learned Departmental Representative then submits that it cannot be open for any division bench to even question or doubt correctness of a five member bench, and that the consistency must be maintained by the bench. We are thus urged to reject the contentions of the assessee and deal with the matter on merits. 6. We have heard the rival contentions, peru .....

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rums above; that is the strength of the hierarchical judicial system. As learned DR rightly points out, it is not to open to us to question the wisdom of the higher judicial forums; we must follow these decisions, in letter and in spirit, as long as the issue is directly covered by the decisions of these forums. Their decisions will be put to test by the forums above them, and considered for concurrence, by the equivalent forums. A decision of the five Member bench cannot be examined by us, in a .....

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