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2022 (5) TMI 1103 - HC - Income TaxTP Adjustment - MAP Settlement based on the TP adjustments - whether it is lawful and permissible for the respondents 'Tax authorities' to defer implementation of the MAP Settlement, and to give effect to the terms of such resolution, insofar as the assessment year 2013-14, on the ground that the petitioner did not disclose the Indian TP adjustments for that year? - Whether the respondents must be directed to take measures to refund the amounts based on the correlative relief as per Annexure-D with permissible interest within a certain timeframe? - HELD THAT - As after the MAP is processed on a reference from US-CA under the provisions of the omitted Rule 44H, the Indian-CA has commenced discussions and negotiations are concluded on the cost base, markup percentage and brand royalty payments on the basis of the US TP adjustments. If the Indian- CA, after the amendment with effect from 06.05.2020, has proceeded with the MAP according to the amended Rules, and if the Communication as per Annexure D is issued, with necessary approvals and conclusion of MA but without calling for details, the respondents cannot now contend that the provisions of unamended Rule 44G must apply and it must defer the implementation of the concluded MAP because the petitioner did not invite the attention of the Indian-CA to the Indian TP adjustments. The cost base, markup percentage and brand royalty payments are discussed and settlement is arrived at after due process. There could be consequential benefit to the Petitioner with loss of Revenue to the Department. However, the provisions of the amended Rule 44G(5) stipulate that there shall not be a decrease in the income or increase in the loss of an assessee in the return of income of a given year, if the MAP is invoked on account of action taken by any income tax authority in India. As rightly, argued by Sri S. Ganesh, this stipulation by converse excludes this rigor when MAP is because of the action taken by an income tax authority of the other contracting country. It is settled law that the terms of DTAA will have precedence even over the provisions of the I-T Act when it is beneficial to an assessee because of the provisions of section 90(2) of the I-T act. An useful reference in this regard could be made to the decisions of division bench of this Court in Wipro Ltd and others v the Deputy Commissioner of Income Tax and others 2015 (10) TMI 826 - KARNATAKA HIGH COURT and also in Director of Income Tax v. Infrasoft Ltd 2013 (11) TMI 1382 - DELHI HIGH COURT based on the decision of the Hon ble Supreme Court in Union of India and another v. Azadi Bachao Andolan and another 2003 (10) TMI 5 - SUPREME COURT The petitioner in this case, for the reasons discussed and the provisions of amended Rule 44G(5), would be entitled to seek precedence to the MAP Settlement. This is also so because of article 27(2) of the DTAA. If the petitioner is entitled for correlative benefits, and consequentially refund, as per the communication dated 06.10.2020 Annexure-D and the benefits are withheld, even for those undisputed assessment years viz., 2010-11 to 2012-13, the respondents must not only amend the assessment orders but also take necessary measures to refund the appropriate amount in terms of the correlative benefits along with interest permissible, and there would be no justifiable reason for denying the same. The petitioner, despite the MAP settlement and the benefit pursuant thereto, has not been given the same and therefore, the respondents must be directed to take necessary measures within a reasonable time. Hence, the questions framed for consideration is answered in favour of the petitioner and against the respondents. ORDER - The petition is allowed. It is declared that the respondents cannot defer implementing or giving effect to the MAP Settlement as per Annexure D either for the assessment years 2010-11 to 2012-13, which is not contested, or for the subsequent assessment year 2013- 14. The respondents are directed to take necessary measures to amend the assessment orders for the assessment years 2010-11 to 2013-14 in conformity with the MAP settlement and allow refund as aforesaid with permissible interest in accordance with the prescribed procedure therefor.
Issues Involved:
1. Implementation of the Mutual Agreement Procedure (MAP) Settlement for the assessment years 2010-11 to 2013-14. 2. Refund of excess amounts of tax paid by the petitioner. 3. Disclosure of Transfer Pricing (TP) adjustments by the petitioner. 4. Compliance with amended Rule 44G and the procedural obligations of the Competent Authority (CA). Detailed Analysis: 1. Implementation of the MAP Settlement: The petitioner sought a mandamus to the respondents to implement the MAP Settlement communicated by the CBDT, reassess the petitioner’s assessment for the relevant years, and refund excess tax paid. The petitioner, a software development company, faced TP adjustments from the US-IRS, which claimed that the compensation received was not at arm's length. The Indian CA and US-CA agreed on certain TP adjustments, and the petitioner was informed of the correlative relief through a communication dated 16.10.2020. 2. Refund of Excess Tax: The petitioner accepted the MAP Settlement and complied with the requirements, including informing the Tribunal of its intention to withdraw the appeal regarding TP adjustments. However, the respondents delayed implementing the MAP Settlement, prompting the petitioner to seek judicial intervention. The court directed the respondents to amend the assessment orders for the years 2010-11 to 2013-14 and refund the due amounts with interest within four months. 3. Disclosure of TP Adjustments: The respondents argued that the petitioner failed to disclose Indian TP adjustments for the assessment year 2013-14, which allegedly blind-sided the Indian CA during MAP negotiations. The petitioner countered that under the amended Rule 44G, the onus was on the Indian CA to call for relevant records and that the general practice was to call for such records in every MAP case. The court noted that the MAP was processed under the amended rules, which unified the procedures for references from foreign CAs and applications by assessees, thus placing the responsibility on the Indian CA to gather necessary information. 4. Compliance with Amended Rule 44G: The court emphasized that the MAP Settlement was concluded and communicated to the petitioner in compliance with the amended Rule 44G, which required the petitioner to accept the terms and withdraw pending appeals. The court found that the Indian tax authorities processed the MAP as pending proceedings as of 06.05.2020, and the petitioner complied with all necessary conditions. The court held that the respondents could not now defer implementation on the grounds of non-disclosure of Indian TP adjustments. Conclusion: The court allowed the petition, declaring that the respondents could not defer implementing the MAP Settlement for the assessment years 2010-11 to 2013-14. The respondents were directed to amend the assessment orders and refund the amounts with permissible interest within four months. The court underscored the precedence of DTAA provisions over the I-T Act when beneficial to the assessee, as per Section 90(2) of the I-T Act and Article 27(2) of the DTAA.
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