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2016 (7) TMI 677 - HC - Income TaxInterpretation of Section 92B - Held that - ALP was arrived at by the Transfer Pricing Officer (TPO) by not adopting any of the methods prescribed under Section 92C of the Act. The method to determine the ALP adopted was not one of the prescribed methods for computing the ALP. It was not even any method prescribed by the Board. At the relevant time, i.e. for A.Y. 200809 Section 92C of the Act did not provide for other method as provided in Section 92C(1)(f) of the Act. The impugned order of the Tribunal holds that the method adopted by the Revenue to determine the ALP was alien to the methods prescribed under Section 92C of the Act. In the above circumstances, the Tribunal declined to restore the issue to the Assessing Officer for re-determining the ALP by adopting one of the methods as listed out in Section 92C of the Act. This finding of the Tribunal has also not been challenged by the Revenue. In view of the fact that the Revenue has accepted the order of the Tribunal on its finding on facts on the two issues as pointed out hereinabove as well as the refusal of the Tribunal to restore the issue of determination of ALP to the TPO by following one of the methods prescribed under Section 92C of the Act. Thus, the questions as formulated for our consideration even if answered in favour of the Revenue would become academic in the present facts. Thus, we see no reason to entertain this appeal. However, we make it clear that the issues of law which has been raised in the present appeal are left open for consideration in an appropriate case.
Issues:
Interpretation of Section 92B(2) of the Income Tax Act, 1961 regarding the applicability of Chapter X to a transaction between two domestic non-Associated Enterprises. Determination of Arms Length Price (ALP) for the sale of imaging business and the method used for such determination. Analysis: 1. The case involves an appeal challenging the order passed by the Income Tax Appellate Tribunal for Assessment Year 2007-08. The main issue raised by the Revenue is whether the provisions of Section 92B(2) apply to a sale transaction between two domestic companies, considering the independence of subsections (1) and (2) of the Act. 2. The respondent, an Indian subsidiary of a US company, sold its imaging business to another Indian subsidiary of a different US company. The respondent argued that since it was a transaction between two domestic non-Associated Enterprises, Chapter X of the Act would not apply, and thus, the transaction was not declared in its report. 3. However, the Transfer Pricing Officer (TPO) considered the transaction to be an International Transaction under Section 92B(2) due to a global agreement between the holding companies of the involved parties. The Assessing Officer relied on this interpretation to issue a draft Assessment Order under Section 144C of the Act. 4. The Dispute Resolution Panel (DRP) upheld the TPO's view, leading the respondent to appeal. The Tribunal, after interpreting Section 92B(2), concluded that the transaction did not fall under the definition of an International Transaction for the relevant assessment year. It also found that even if the Revenue's interpretation was accepted, no addition on account of Arms Length Price (ALP) was warranted. 5. The Tribunal further noted that the method used by the Revenue to determine the ALP was not prescribed under Section 92C of the Act and declined to restore the issue to the TPO for reevaluation using the prescribed methods. 6. The Revenue's grievance was solely regarding the interpretation of Section 92B of the Act, while the Tribunal's findings on the independence of the transaction terms from the global agreement and the reasonableness of the ALP were not challenged. 7. Ultimately, the Court dismissed the appeal, stating that the questions raised by the Revenue had become academic due to the acceptance of the Tribunal's findings on facts and the refusal to restore the ALP determination issue. The Court clarified that the legal issues raised in the appeal could be considered in a future case but were not relevant in the present circumstances.
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