INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Determination of ALP - Computation of PLI - Treatment of commission income on completion of international transaction of rendering marketing support services

Assessee earned commission on transactions of rendering marketing services to its AEs for which credit notes were issued by AEs during the year under consideration, but invoices were raised in earlier year(s). Commission income was classified as prior period income. TPO denied to include the same in the operating revenue base for determining ALP. Held: Commission income in such first scenario could not be included in the operating revenue base and would require exclusion as the income has not accrued, inasmuch as transaction itself was incomplete. But, commission income in such second scenario would be included in the operating revenues because transaction of rendering marketing services was over and resultant income had accrued. This exercise was to be done by TPO. Once commission was included in the revenue base, that was characterized by assessee as 'Prior period income', the sequitur is that in the same way all the operating costs -- direct or indirect; close or remote--in relation to such international transaction incurred in earlier years should also be included in the cost base for determining ALP of transaction in the concerned year. The obvious reason is that all the operating costs/revenue in relation to the international transaction were to be considered at the time of determining the ALP of international transaction.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 92C

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