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The Commissioner of Income Tax-6 Versus M/s. Merck Ltd.

2016 (8) TMI 561 - BOMBAY HIGH COURT

Transfer pricing adjustment - whether the transactions of import of pigments and fees for technical knowhow were at arm's length? - Held that:- Chapter X of the Act provides for computation of income arising from an International Transaction on the basis of the ALP in respect of transactions between AEs. Section 92(3) of the Act, which is part of Chapter X of the Act provides that the Transfer Pricing provisions will not apply where it results in reduction of income chargeable to tax. The result .....

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unal on the basis of imposition of antidumping duty by the Customs is not challenged before us. The finding of the Tribunal that no adjustment is called for in the price paid by the Assessee for import of pigments for its AE's is a finding of fact which is not shown to be perverse and/or arbitrary. - Technical knowhow/ Consultancy Fee -The finding of the Tribunal that the agreement for technical knowhow / consultancy was in respect of all the twelve services and Respondent-Assessee could ava .....

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yable by the Respondent-Assessee to its AE, makes the entire Transfer PricingAgreement unsustainable in law. - Entitlement to deduction under Section 80HHC - non reduction of the amount credited to the Profit & Loss Account on revaluation of assets - Held that:- Explanation (baa) to Section 80HHC of the Act applies only to receipt by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in the profits. The amount credited on account of revalua .....

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Section 80HHC of the Act without reduction of the amount credited to the Profit & Loss Account on revaluation of assets. - Income Tax Appeal No. 272 of 2014 - Dated:- 8-8-2016 - M. S. Sanklecha And A. K. Menon, JJ. Mr. Suresh Kumar with Ms. Samiksha Kanani, for the Appellant Ms. A. Vissanji with Mr. S. J. Mehta, for the Respondent ORDER P. C. This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), challenges the order dated 19th July, 2013 passed by the Income Tax Appellate Tribuna .....

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m's length?. (b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in concluding that write back of loss, arising on revaluation, credited in the P & L A/c is eligible for deduction u/s. 80HHC? (c) Whether on the facts and in the circumstance of the case and in law, the Tribunal was justified in allowing double deduction under Section 80IB and 80HHC of the Income Tax Act without appreciating that as per provision of Section 80IB (13)/80IA(9) .....

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of pigment and import of technical knowhow/ consultancy by the Respondent-Assessee from its Associated Enterprises (AE). We shall consider each of them separately. (I) Pigments: (a) The impugned order of the Tribunal held that no Transfer Pricing Adjustment is required to arrive at the ALP in respect of import of pigment. This, inter alia, on the basis that the consideration paid for import of pigments to its AE was less than the normal consideration as evidenced by imposition of antidumping dut .....

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enue evidences the fact that the Assessee was deliberately following a predatory pricing policy in India with a view to finish local competition. This according to the Revenue will establish that the import of pigments is at a price lessor then ALP. Therefore, the question ought to be admitted for consideration. (c) We are unable to understand the grievance of the Revenue. Chapter X of the Act provides for computation of income arising from an International Transaction on the basis of the ALP in .....

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ted 27th August, 2002 submitted by the Assessee establishes a pricing policy with a view to finish local competition, does not in any manner have any impact on determining the ALP on import of pigment. The finding arrived at by the Tribunal on the basis of imposition of antidumping duty by the Customs is not challenged before us. The finding of the Tribunal that no adjustment is called for in the price paid by the Assessee for import of pigments for its AE's is a finding of fact which is not .....

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ices of its AE during the subject Assessment Year only in three out of twelve fields listed in the agreement. The TPO, therefore, proceeded to hold that the entire consideration of ₹ 1.57 Crores is attributable to the three technical services which the Respondent-Assessee availed of and held that no consideration was payable in respect of nine services provided for in the agreement. Thus the entire payment of ₹ 1.57 Crores was attributable only to the three services availed out of th .....

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ent-Assessee that in terms of the Agreement, the AE was obliged to provide technical assistance in the 12 areas listed in the Agreement. There was no obligation upon the Respondent-Assessee to obtain technical assistance in all the 12 areas listed in the Agreement . The Respondent-Assessee could ask for assistance in the areas required and the AE was obliged to give it. It is for the availability of the assistance in all twelve areas that the consideration was paid. Thus, no adjustment was requi .....

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ervices which it had availed of from its AE before holding that the ALP in this case is ₹ 40 lakhs. This was became no exercise to bench mark it with comparable cases was done. Therefore, the consideration payable for the services availed of by the Respondent-Assessee to determine the ALP was not carried out. In the above view, the Tribunal allowed Respondent-Assessee's appeal on the above issue. (c) The grievance of the Revenue before us is that services only in three areas had been a .....

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hat even in respect of three fields where Respondent-Assessee had availed the services, no exercise to bench mark the same with similar transactions entered into between independent parties was carried out before holding that the ALP in the three areas availed is ₹ 40 lakhs, is not disputed. The finding of the Tribunal that the agreement for technical knowhow / consultancy was in respect of all the twelve services and Respondent-Assessee could avail of all or any one of these twelve areas .....

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makes the entire Transfer PricingAgreement unsustainable in law. (e) In view of the above, the finding of fact arrived at by the Tribunal that ₹ 1.57 Crores paid by it to its AE is in respect of its right to avail and the obligation of the AE to provide technical assistance in any of the twelve services listed out in the technical knowhow agreement entered into between Respondent-Assessee with its AE is not shown to be perverse. The view taken by the Tribunal in the present facts is a pos .....

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was credited to the Profit & Loss Account of the Respondent-Assessee in the previous year relevant to the Assessment Year. The Assessing Officer assessed the amount credited on account of revaluation of assets as a part of the business income of the Respondent-Assessee. Further, while computing the deduction under Section 80HHC of the Act, the Assessing Officer treated the amount credited to the Profit & Loss Account on account of revaluation as falling under Explanation (baa) to Section .....

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ed to the Profit & Loss Account on account of revaluation did not arise out of any receipt. Further, it held that Explanation (baa) to Section 80HHC of the Act applies only to receipt by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in the profits. The amount credited on account of revaluation of the assets though included in the business income does not fall in the nature of receipts spelled out in Explanation (baa) to Section 80HHC o .....

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