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15.11.2016 - Voice of CA presents - Updates
Tuesday, November 15, 2016

I. Headlines Today    

  1. Centre to share model GST law with states today  (Click for detail)
  2. Plugging the gaps! Government banks on fresh steps to ensure any time money  (Click for detail)
  3. Beating cash crunch: e-transaction fees, ATM charges waived off  (Click for detail)
  4. I-T department checking high-value deposits  (Click for detail)
  5. Weekly withdrawal limit from current account increased to Rs 50,000  (Click for detail)
  6. SEBI Circular: Clarification on aspects related to day count convention for debt securities issued under the SEBI (Issue and Listing of Debt Securities) Regulations, 2008  (Click for detail)
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

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.

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

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.

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)

III. A Useful Video:

1.  Withdrawal of Service tax exemption on cross border B2C online information and database access or retrieval services w.e.f. December 1, 2016

(Please click here for detail)

2.  Entry tax levy upheld by the Supreme Court

(Please click here for detail)

(Contribution by CA. Bimal Jain and contributor is available at eMail-id: 

 Golden Rules:

  "To Accomplish Great Things
We Must Not Only Act, But Also Dream
Not Only Plan, But Also Believe"


  Thanks & Regards


Voice of CA 

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