IHG IT Services (India) P. Ltd. v. ITO

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The Tax PublishersITA No. 5890/Del/2010 2013 TaxPub(DT) 1331 (Del-Trib) : (2013) 052 (II) ITCL 0486 : (2013) 144 ITD 0016 : (2013) 154 TTJ 0137 : (2013) 086 DTR 0257 : (2013) 023 ITR (Trib) 0608 INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALP Validity of retrospective amendment to second proviso--The assessee had challenged the constitutional validity of retrospective amendment to second proviso to section 92C(2). Assessee submitted that in view of the decision of Pune Bench of ITAT in the case of Piagio Vehicle (P.) Ltd. v. Dy. CIT in 2014 TaxPub(DT) 4783 (Pune-Trib), it was entitled to benefit of 5 per cent tolerance margin for the purpose of determining the arm's length price of the international transaction. *Held:* Though the decision of ITAT, Pune Bench was after coming into force of the Finance Act, 2012, but, the amendment brought by the Finance Act, 2012 which had retrospective effect had not been considered by the ITAT, Pune Bench. ITAT was a creation of the Income Tax Act and not a constitutional authority. It could not adjudicate upon constitutional validity or otherwise of any provision of the Income Tax Act. Therefore, assessee's argument that retrospective amendment to the second proviso to section 92C(2) by the Finance Act, 2012 was constitutionally invalid, was rejected. Income Tax Act, 1961, Section 92C(2), Second proviso INCOME TAX ACT, 1961 --Transfer pricing--Computation of ALP Benefit of tolerance margin prescribed under proviso to section 92C(2)--The issue arose was whether prior to insertion of second proviso to section 92C(2), the benefit of 5 per cent tolerance margin as prescribed under proviso to section 92C(2) for the purposes of determining the arm's length price of an international transaction was allowable as a standard deduction in all cases, or was allowable only if the difference was less than 5 per cent. *Held:* After the retrospective amendment to the second proviso to section 92C(2) brought by the Finance Act, 2012, there remained no ambiguity that the benefit of tolerance margin was available only when the variation between the arm's length price, as determined under section 92C(1) and the price at which the international transaction had actually been undertaken, did not exceed the tolerance margin. Once it exceeded the tolerance margin, no benefit under the proviso would be available to the assessee and the ALP as determined under section 92C(1) shall be considered. Income Tax Act, 1961, Section 92C(2), Proviso In the ITAT, Delhi Special Bench C G. D. Agrawal, S.V. Mehrotra, A.M. & Rajpal Yadav, J.M. IHG IT Services (India) P. Ltd. v. ITO ITA No. 5890/Del/2010 A.Y. 2006-07 30 April, 2013 Appellant by : Varun Khanna, CA Respondent by : Peeyush Jain, CIT-DR ORDER This Special Bench was originally constituted under section 255(3) of the Income Tax Act, 1961 by the Honble President, Income Tax Appellate Tribunal, vide order dated 16-3-2012, consisting of Shri G.E. Veerabhadrappa, President, Shri G.D. Agrawal, Vice President and Shri Rajpal Yadav, Judicial Member, inter alia, to consider and decide the following question : SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 5890/Del/2010
2013 TaxPub(DT) 1331 (Del-Trib) : (2013) 052 (II) ITCL 0486 : (2013) 144 ITD 0016 : (2013) 154 TTJ 0137 : (2013) 086 DTR 0257 : (2013) 023 ITR (Trib) 0608

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALP Validity of retrospective amendment to second proviso--The assessee had challenged the constitutional validity of retrospective amendment to second proviso to section 92C(2). Assessee submitted that in view of the decision of Pune Bench of ITAT in the case of Piagio Vehicle (P.) Ltd. v. Dy. CIT in 2014 TaxPub(DT) 4783 (Pune-Trib), it was entitled to benefit of 5 per cent tolerance margin for the purpose of determining the arm's length price of the international transaction. Held: Though the decision of ITAT, Pune Bench was after coming into force of the Finance Act, 2012, but, the amendment brought by the Finance Act, 2012 which had retrospective effect had not been considered by the ITAT, Pune Bench. ITAT was a creation of the Income Tax Act and not a constitutional authority. It could not adjudicate upon constitutional validity or otherwise of any provision of the Income Tax Act. Therefore, assessee's argument that retrospective amendment to the second proviso to section 92C(2) by the Finance Act, 2012 was constitutionally invalid, was rejected.

Income Tax Act, 1961, Section 92C(2), Second proviso

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALP Benefit of tolerance margin prescribed under proviso to section 92C(2)--The issue arose was whether prior to insertion of second proviso to section 92C(2), the benefit of 5 per cent tolerance margin as prescribed under proviso to section 92C(2) for the purposes of determining the arm's length price of an international transaction was allowable as a standard deduction in all cases, or was allowable only if the difference was less than 5 per cent. Held: After the retrospective amendment to the second proviso to section 92C(2) brought by the Finance Act, 2012, there remained no ambiguity that the benefit of tolerance margin was available only when the variation between the arm's length price, as determined under section 92C(1) and the price at which the international transaction had actually been undertaken, did not exceed the tolerance margin. Once it exceeded the tolerance margin, no benefit under the proviso would be available to the assessee and the ALP as determined under section 92C(1) shall be considered.

Income Tax Act, 1961, Section 92C(2), Proviso

In the ITAT, Delhi Special Bench C

G. D. Agrawal, S.V. Mehrotra, A.M. & Rajpal Yadav, J.M.

IHG IT Services (India) P. Ltd. v. ITO

ITA No. 5890/Del/2010

A.Y. 2006-07

30 April, 2013

Appellant by : Varun Khanna, CA

Respondent by : Peeyush Jain, CIT-DR

ORDER

This Special Bench was originally constituted under section 255(3) of the Income Tax Act, 1961 by the Honble President, Income Tax Appellate Tribunal, vide order dated 16-3-2012, consisting of Shri G.E. Veerabhadrappa, President, Shri G.D. Agrawal, Vice President and Shri Rajpal Yadav, Judicial Member, inter alia, to consider and decide the following question :