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II. Direct Taxes Case Laws:
1. Magneti Marelli Powertrain India Pvt. Ltd. Vs. DCIT, I.T.A. No. 350/2014, Date of Order: 25.10.2016, High Court of Delhi
Issue:
Whether different methods can be applied separately for
benchmarking/computing arm's length price in respect of transactions
belonging to the same class or nature of transactions?
Held: No
Brief Facts:
The assessee is a Joint Venture Company (JV) of M/s. Magneti Marelli
Powertrain SPA, Italy, Maruti Suzuki India Ltd. and Suzuki Motor
Corporation, Japan. It was incorporated in India to manufacture and sell
Engine Control Units (ECUs). It reported six international transactions
including “Payment of technical assistance fee”. This transaction alone
is the subject matter of dispute as the TPO did not question the other
five transactions. The relevant facts for this transaction are that the
assessee entered into agreement with its foreign Associated Enterprise
(A.E.) for acquiring technology required for the purpose of
manufacturing ECUs and applied the Transactional Net Margin Method
(TNMM) to benchmark its international transactions. All transactions
were categorized under one broad head, viz. “Manufacturing of automotive
components”. The assessee, on the basis of its analysis claimed that
its international transactions under the broad head (which included
`Payment of technical assistance fee') were at Arm’s Length Price (ALP).
This was rejected by the TPO who held that the TNMM had to be applied
separately for each international transaction and not collectively as
done by the assessee and was of the view that the Comparable
Uncontrolled Price (CUP) method was more apt and had to be applied.
Ld. AR
urged that the legislature intended that in such matters the method most
appropriate “having regard to the nature of transaction or class of
transactions or class of associated persons or functions” is to be
viewed and thus, it is not open to the TPO/AO to segregate a set of
transactions from a series or class of transactions. He further stated
that the ITAT’s decision, rejecting the assessee’s contention that under
TNMM, various components of payments and expenses could be aggregated
together is in error of law and having upheld the deployment of the TNMM
for other transactions, it was not open to use the CUP method for only
one part of the transaction, i.e. the one payment for technology.
Held:
The court concurred with the assessee that having accepted the TNMM
as the most appropriate, it was not open to the TPO to subject only one
element, i.e. payment of technical assistance fee, to an entirely
different (CUP) method. It was further stated that each method is a
package in itself, containing the necessary elements that are to be used
as filters to judge the soundness of the international transaction in
an ALP fixing exercise. If this were to be disturbed, the end result
would be distorted and within one ALP determination for a year, two or
even five methods could be adopted, which would spell chaos and be
detrimental to the interests of both the assessee and the revenue.
The appeal of assessee is allowed.
(Please click here for judgment)
2. Shri Pankaj Dhingra Vs. ACIT, I.T.A. No. 2155/Del/2011, Date of Pronouncement: 30.09.2016, ITAT - Delhi
Issue:
Whether the relinquishment of a share in asset without
consideration is covered under the provisions of section 49(1) of the
Income Tax Act, 1961 and the benefit of indexation would be available
from the date of acquisition of such asset by the first owner?
Held_ Yes
Brief Facts:
The capital asset in question was purchased by the assessee’s father
in 1980. The equal share of the same property was transferred to the
assessee, his mother, his brother and his sister i.e. 1/4th shares each
in March, 2001. By executing the registered relinquishment deed in
September, 2001, assessee’s mother, brother and sister collectively
transferred their 3/4th share in the favour of assessee. Later, the
entire property was sold by the assessee in October, 2004. The assessee
computed the long term capital gain by taking indexation from FY 1981-82
for the entire asset. However, AO re-computed LTCG taking indexation
from FY 2001-02. On appeal before CIT(A), CIT(A) allowed cost of
acquisition for 1/4th share of the assessee from 01-04-1981 and took
cost of acquisition for rest 3/4th share as Nil. Being aggrieved with
the same, the assessee preferred appeal before the hon’ble ITAT.
Held:
It was held that since 3/4th share in property was relinquished in
the name of assessee without any consideration, the same was held to be a
transaction of gift in the light of decision of the hon’ble Apex Court
in Kuppuswami Chettiar vs A.S.F.A. Arumugan Chettiar 1967 AIR 1395.
It was
further observed that the assessee got the right over 3/4th share in
property by way of gift from the persons who acquired the property by
way of inheritance and the transferors of the property had not earned
any capital gain while relinquishing their share in asset and as such,
no indexation benefit was claimed in respect of such transfer. Thus, the
indexation would be allowed from 01-04-1981 in view of provisions of
section 49(1) r.w. sub-clause (b) to clause (i) to Explanation-1 to
section 2(42A) of the Act as the property was purchased by first owner
on 21-05-1980.
The appeal of the assessee was allowed.
(Please click here for judgment)
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