Western India Regional Council of
The Institute of Chartered Accountants of India

Law Update Details

 
May 2019 CA. Bhavya Goyal, CA. Bhavesh Dedhia
 

20 SLP’s before SC


In the case of different assesses, the revenue as well as the assessees have filed 20 SLPs before the Hon’ble Supreme Court challenging the Karnataka HC orders upholding ITAT orders on comparables selection, application of filters, treatment of expenses or income as operating/non-operating item, grant of adjustments etc.. The Karnataka HC had relied on a co-ordinate bench ruling in the case of Softbrands wherein it was held that “Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law” and also held that “unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable” and dismissed the appeals on fact based TP-issues.


PMP Auto Components Pvt. Ltd.


Bombay High Court


Bombay HC upheld ITAT order deleting the TP adjustment of Rs. 2.58 cr on account of excess money paid to 100% subsidiary for acquiring its shares. HC noted that Revenue sought to bring the difference between actual investment (Rs. 2.67 cr) & fair market value of shares (Rs. 8.13 lakhs) i.e. Rs. 2.58 cr to tax without being able to specify under which substantive provision would income arise. HC observed that the assessee had purchased the shares on capital account and held that “the issue arising here stands concluded by the decision of this Court in Vodafone” (The view taken in Vodafone was also subsequently accepted by CBDT by issuance of CBDT Instruction 2/2015 dated January 29, 2015).


Draft report on Attribution of Profit to Permanent Establishments


The Committee constituted by the CBDT submitted a detailed 86 pages report recommending changes to the rules for attribution of profits to Permanent Establishments. The Committee suggested a “three factor” method to attribute profits, with equal weight to a) sales, b) manpower, c) assets. The Committee observed that the profits derived from India need to be defined objectively, and considers that the same can be arrived at by multiplying the revenue derived from India with the global operational profit margin. However, acknowledging the contribution of market jurisdictions, where the enterprise is having global losses or where its global operational profit margin is less than 2%, then the same can be arrived at by deeming the global operational profit margin to be 2%.


In light of the ‘Significant Economic Presence’ concept legislated by India, the Committee recommends a four factor approach in case of “multi-dimensional” enterprises considering the role and relevance of ‘users’ and their contribution to business profits of a MNC; the Committee assigns weightage of 10% and 20% respectively to ‘users’ in four factor approach, depending on low user intensity models or high intensity ones.


The CBDT seeks suggestions/comments from stakeholders/general public on the recommendations of the Committee within 30 days of publication of the Report.

 

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