9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (2) TMI 546 - HC - Income TaxTP adjustment relating to Non-US Transactions on the same framework as adopted for determining the TP adjustment in respect of US Transactions - It is the Assessee s case that MAP (Mutual Agreement Procedure) is based on consensus between the competent authorities of the contracting states and the basis for TP adjustments under the MAP cannot be applied to international transactions which are not subject of negotiations under the MAP. Whether it is apposite to use the framework agreed by competent authorities of the US and India under the MAP in terms of Article 27 of the Indo-US DTAA for deciding transfer pricing issues that are not covered under the said framework? - HELD THAT - MAP is a resolution process by competent authorities of contracting states by negotiations and consensus. In a case of a transfer pricing adjustment an assessee may not be aggrieved by an upward revision if the overall taxation between the assessee and its AE is acceptable to it. A multi-national group may accept a situation where an upward TP adjustment by a taxing authority of one country has a corresponding mitigating effect on the taxable revenue of its constituent entity in the other contracting state. It may do so even though it considers the same to be incorrect as the adverse effect in one jurisdiction may even out in another. However this would not justify a TP adjustment in respect of transactions which are disputed and not subjected to MAP. MAP procedure is based on an agreement between the competent authorities of the contracting states which is accepted by the Assessee. The effect of imputing a framework arrived at between competent authorities of India and the US in respect of US Transactions to Non-US Transactions has an effect of imposing a consensual and negotiated settlement regarding one set of transaction to another where there is no such consensus. This in effect seeks to foreclose a right of an assessee to dispute a TP adjustment on the basis of the assessee s acceptance of an agreement in a situation which is materially different. It is of vital importance to note that there is no agreement between the tax authorities of other Non-US countries regarding the determination of the ALP of Non-US Transactions. Thus the TP adjustments made on the basis of MAP under the Indo-US DTAA does not bind the tax authorities of the non-US countries. Resolution under MAP is by consent and negotiations; such resolution cannot be imposed in a contested case where there is no consensus. An agreement arrived at by the competent authorities of two contracting states under MAP cannot substitute the determination of ALP under the Act and the Rules in cases which are not covered under the MAP. The ALP in such cases must necessarily be determined in accordance with Section 92C of the Act and Rule 10B of the Rules. MAP is a specific procedure for addressing issues arising out of DTAA and must necessarily be confined to those issues and the subject transactions. The Agreement under MAP cannot be extrapolated as a determination of ALP of international transactions which are not subject to MAP under Section 92C of the Act or Rule 10B of the Rules. Thus decision of the ITAT to direct the determination of the ALP for Non-US Transactions on the basis of framework as agreed to by the competent authorities under MAP for US Transactions is not in accordance with law and thus the said decision cannot be sustained. Decided in favour of the Assessee
ISSUES PRESENTED and CONSIDERED
The core legal question considered was whether the Income Tax Appellate Tribunal's (ITAT) decision to apply the framework agreed upon under the Mutual Agreement Procedure (MAP) for US Transactions to Non-US Transactions was in accordance with the statute. The issue was whether the framework agreed by competent authorities of the US and India under MAP could be applied to transfer pricing adjustments for transactions not covered under the MAP. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework involves the application of Section 92CA of the Income Tax Act, 1961, which deals with the determination of the arm's length price (ALP) for international transactions. The MAP is provided under Article 27 of the India-US Double Taxation Avoidance Agreement (Indo-US DTAA), which is a consensual procedure for resolving disputes regarding double taxation. The MAP allows competent authorities of the contracting states to resolve issues through mutual agreement. Court's Interpretation and Reasoning The Court reasoned that the MAP is a consensual procedure designed to resolve disputes through negotiations between competent authorities of the contracting states. It is applicable only to issues that fall within the scope of the DTAA and cannot be extended to transactions not covered under the MAP. The Court emphasized that the resolution under MAP is based on mutual agreement and cannot be imposed on contested cases where there is no consensus. Key Evidence and Findings The ITAT had accepted the Revenue's contention and remanded the matter to the Transfer Pricing Officer (TPO) to determine the TP adjustment for Non-US Transactions using the framework agreed under MAP for US Transactions. However, the Court found that the MAP resolution was specific to US Transactions and could not be applied to Non-US Transactions, which were not subject to the same agreement. Application of Law to Facts The Court applied the provisions of the Income Tax Act and the Indo-US DTAA to determine that the MAP framework could not be used to resolve transfer pricing issues for Non-US Transactions. The ALP for such transactions must be determined in accordance with Section 92C of the Act and Rule 10B of the Income Tax Rules, independent of the MAP framework. Treatment of Competing Arguments The Assessee argued that the MAP framework, being a result of negotiations specific to US Transactions, could not be extrapolated to Non-US Transactions. The Revenue contended that the same framework should apply to ensure consistency. The Court sided with the Assessee, concluding that the MAP framework could not substitute the statutory process for determining ALP for Non-US Transactions. Conclusions The Court concluded that the ITAT's decision to apply the MAP framework to Non-US Transactions was not in accordance with the law. The determination of ALP for Non-US Transactions must be conducted independently, as per the statutory provisions. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning "An agreement arrived at by the competent authorities of two contracting states under MAP cannot substitute the determination of ALP under the Act and the Rules in cases which are not covered under the MAP." Core Principles Established The core principle established is that the MAP framework, being a consensual and negotiated settlement specific to certain transactions, cannot be imposed on other transactions that are not subject to the same agreement. Each set of transactions must be evaluated independently based on the applicable statutory provisions. Final Determinations on Each Issue The Court determined that the ITAT's decision to apply the MAP framework to Non-US Transactions was incorrect and not supported by law. The appeal was restored to the ITAT for a decision in accordance with the statutory provisions of the Income Tax Act.
|
