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The Law On Use Of Secret Comparables In Transfer Pricing

Justice Vineet Kothari

The Law On Use Of Secret Comparables In Transfer Pricing

Hon’ble Dr. Justice Vineet Kothari, Judge, Rajasthan High Court
The question whether the TPO is entitled to rely on secret comparables whilst determining the ALP of an international transaction has been the subject matter of great controversy. The learned Judge, who is also a qualified CA and CS, has carefully analyzed the entire law on the subject and explained it with great clarity. He has also provided perspective on the proper procedure that the TPO has to follow while determining the ALP

1. Introduction
In the present paper, I propose to deal with some of the cases decided in India in last couple of years by High Courts and Income Tax Tribunal on the issue which I am expected to deal, namely, the comparability of secret comparables by TPO while determining ALP.
I should inform you, the fellow members, that there are very few decided & reported cases yet from higher appellate & Constitutional Courts like Supreme Court of India at Delhi and 24 High Courts, from one of which, Rajasthan High Court, Jodhpur from where I come.

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The Law On Deductibility Of H. O. Expenses Of A Permanent Establishment

Sumeet-Khurana

The Law On Deductibility Of H. O. Expenses Of A Permanent Establishment

CA Sumeet Khurana, Joint Director, Lakshmikumaran & Sridharan
The author explains the delicate interplay between s. 44C of the Act and Article 7(3) of the DTAA on the deductibility of H. O. expenses incurred by a Permanent Establishment (PE). He explores the scope of the non-discriminatory mandate in Article 7(3) of the DTAA & examines the extent to which it overrides s. 44C. He also reviews the several judgements on the point and argues that some of them are wrong and require reconsideration

1. Background

Business presence of a foreign entity in India creating a business connection attracts tax on the profits earned by such presence to the extent they are attributable to operations carried out in India (Section 9 of the Income tax Act, 1961). Where such business presence constitutes a permanent establishment (PE) of a foreign entity, then even the relevant Double Taxation Avoidance Agreement (‘DTAA’ or ‘tax treaty’) recognizes the right of the PE state (India) to tax the profits attributable to the PE.

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ESOP: Being Used As A Double Edged Sword By The Department

CA Vidhan Surana & CA Sunil Maloo

ESOP: Being Used As A Double Edged Sword By The Department

CA Vidhan Surana & CA Sunil Maloo
The authors have carefully studied the recent landmark judgement of the Special Bench in Biocon Ltd on the deductibility of ESOPs in the hands of the employer and identified several important aspects in it. They argue that the Department is wrong in adopting the “double edged sword” stand of taxing ESOPs in the hands of the employee while denying a deduction to the employer

Today, organizations realize that they have to go that extra mile to make their employees stay. Sharing their wealth and helping employees create wealth in the form of ‘Employee Stock Option Plan (ESOP)’ is one such initiative, which is gaining immense popularity in recent times.

An employee stock ownership plan (ESOP) is an employee-owner scheme that provides a company’s workforce with an ownership interest in the company. This is the latest trend in the industry. This is a very important tool in almost all industries. Where, the greatest assets are the employees and their knowledge. The organization loses on this if the employee were to leave. So in order to retain the employees they are offered direct participation in the form of shares of the company.

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Contribution Of The ITAT Hyderabad Bench To The Cause Of Justice

Hon'ble Shri. D. Manmohan

Contribution Of The ITAT Hyderabad Bench To The Cause Of Justice

Hon’ble Shri. D. Manmohan, Vice-President (Mumbai Zone)

The learned Jurist reminisces about the stellar contribution that the Hyderabad Bench of the Tribunal has made to the cause of justice. Several of its Members have been elevated to higher echelons of the Judiciary; it has attracted the crème de la crème of the profession and it has delivered several landmark judgements. This is made possible due to the stellar quality of the people behind the Bench says the learned Judge

President, AP Tax Bar Association and its office bearers as well as distinguished invitees from the bar, Senior Departmental Representatives and distinguished special invitees and colleague brothers on the dais,

Good Morning

The Income tax Appellate Tribunal was established on 25.1.1941. Originally, it had only three benches, whereas it has now 63 benches at 27 cities. In 1995 the pendency all over of India crossed three lakhs, and because of sanctioning of new benches by the Government, we were able to stick to our logo i.e. Sulabh Nyay and Satwar Nyay’. Now the pendency is hovering about 80,000.

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S. 132B: Implications Of Seized Cash Not Being Treated As Advance Tax

Dr.  Raj K. Agarwal & Dr.  Rakesh Gupta

S. 132B: Implications Of Seized Cash Not Being Treated As AdvTax

Dr. (CA) Raj K. Agarwal & Dr. Rakesh Gupta, Advocate
S. 132B was amended by the Finance Act 2013 to provide that the cash seized during a search cannot be adjusted against the liability to pay advance-tax. The authors argue that the said provision, apart from being harsh on the assessees is ill-thought of because it will discourage voluntary disclosure of unaccounted income. They also explain the other implications of the said provision

Finance Act, 2013 has inserted Explanation 2 to section 132B which reads as under:-

“For the removal of doubts, it is thereby declared that the “existing liability’’ does not include advance tax payable in accordance with the provision of part C of chapter XVII ”.

Section 132B of the Income Tax Act prescribes the provisions regarding the application of seized assets including cash seized during the course of income tax search conducted u/s 132 or requisitioned or 132A of the Act. It prescribes, inter alia, that the seized assets/cash can be utilized for the purpose of recovery and adjustment of  the amount of any  existing  tax liability and the amount  of the  liability determined  on completion of the assessment in  pursuance to search u/s 153A.

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S. 147: A Treatise On The Law Of Reopening Of Assessments

CA Vidhan Surana & CA Sunil Maloo

S. 147: A Treatise On The Law Of Reopening Of Assessments

CA Vidhan Surana & CA Sunil Maloo
S. 147 confers wide powers on the AO to reopen completed assessments and bring to tax income which has escaped assessment. However, there are several technical rules that have to complied with by the AO. The authors have carefully studied the entire law on the subject and presented it in a clear and succinct manner so that it can be ensured that the reopening is as per the law

The assessing officer is empowered under section 147 of the Income Tax Act, 1961 to assess or reassess the income escaping assessment. This is popularly known as ‘reopening of the assessment’.

In following cases, it would be deemed that income chargeable to tax has escaped assessment:

– Where no return is furnished for the relevant A.Y.

– Where return has been furnished but assessment is not done and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

– where the Assessee has failed to furnish a report in respect of any international transaction which he was so required under  section 92E

– where an assessment has been made, but—

– income chargeable to tax has been underassessed ; or

– such income has been assessed at too low a rate ; or

– such income has been made subject of excessive relief under this Act ; or

– excessive loss or depreciation allowance or any other allowance under this Act has been computed.

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The Duties And Accountability Of Lawyers

Sohrab Erach Dastur

The Duties And Accountability Of Lawyers

Sohrab Erach Dastur, Senior Advocate
Eminent Jurist Soli Dastur draws upon his rich experience of the past five decades to lay down the duties and accountability of lawyers and how they should deal with several ethical problems and areas of conflict that arise in day-to-day practice. With his usual candour and clarity of expression, he examines the issues threadbare and provides invaluable and authoritative guidance on what they should do in difficult situations so as to keep their professional integrity intact at all times. Though written in the context of lawyers, the article provides guidance to professionals in all fields

A story going the rounds is that the Chairman of a company after referring to the next speaker as a lawyer added “he is nevertheless a nice person.” But is the jibe deserved? Before passing judgement it would be appropriate to consider the duties a lawyer owes to his client, to his profession and to the Court, his accountability therefor and the conflicts which arise in discharging the separate and distinct duties. Recently, the emphasis has shifted to the lawyer’s duty to Society. Though one cannot ignore this duty it is a duty subordinate to his primary duties of accountability to his client, profession and to the Court. The meticulous performance of these duties with care and precision is itself the performance of his duty to Society. Though not normally referred to, there is a fifth and equally – if not more – important duty – his duty to himself.

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S. 263: Guide To The Law On Revision Of Assessments

CA Rahul Sarda

S. 263: Guide To The Law On Revision Of Assessments

CA Rahul Sarda
Section 263 of the Income-tax Act, 1961 confers wide powers on the Commissioner to revise any assessment which is “erroneous and prejudicial to the interests of the revenue”. While the section is widely worded, Courts have read in a number of checks and balances to ensure that the said power is not abused by the Commissioner. The author has carefully analyzed the entire law on the subject and identified all the core legal principles

Section 263 of the Income-tax Act, 1961 (the “Act”) confers the power upon the Commissioner to call for and examine the records of a proceeding under the Act and revise any order if he considers the same to be erroneous and prejudicial to the interests of the revenue. These are wide powers and have been subject to reasonable checks and balances to prevent their arbitrary use. For example, requirement of notice, opportunity of hearing etc. Section 263 of the current Act corresponds to section 33B of the Income-tax Act, 1922 and has been on the statute book since 1961, albeit with certain modifications. The law of section 263 has been comprehensively laid down by the judicial authorities in a number of decisions. The following paragraphs contain a gist of the law on the subject.

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S. 56(2)(vii)(b): Controversies Arising After Amendment By Finance Act 2013

Dr.  Raj K. Agarwal & Dr.  Rakesh Gupta

S. 56(2)(vii)(b): Controversies Arising After Amendment By FA 2013

Dr. (CA) Raj K. Agarwal & Dr. Rakesh Gupta, Advocate
S. 56(2)(vii)(b), as substituted by the Finance Act 2013, provides that if immovable property is transferred for a consideration which is less than the stamp duty value, the difference is assessable as income in the transferee’s hands. The authors have carefully studied this provision and raised several thought-proving questions as to its implications in the hands of the transferor and the transferee

Finance Act, 2013 has substituted clause (b) of section 56(2)(vii) w.e.f. 1.4.2014 providing, inter alia, that where an individual or Hindu Undivided Family receives, in any previous year, from any person or persons any immovable property-

(i) Without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(ii) For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration

shall be chargeable to income tax under the head “Income from Other Sources”.

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How To Ensure Expenditure On Director’s Relative’s Education Is Deductible

CA-Somil-Agarwal

How To Ensure Expenditure On Director’s Relative’s Education Is Deductible

CA Somil Agarwal
There are several judgements on the question of deductibility of expenditure incurred on education of a director’s relative. While some have held the expenditure to be incurred for business purposes, others have held it to be in the nature of personal expenditure. The author has carefully analyzed the judgements and culled out the core principles that need to be borne in mind to ensure that the expenditure is deductible

Section 37(1) of the Income Tax Act, 1961 allows such expenses against the taxable business profits, which inter alia are not personal expenses and are incurred wholly and exclusively for the purpose of business. There are certain types of expenses which on the face of it appear to be personal expense or at least an expense not incurred wholly and exclusively for the purpose of business. Such expenses invite incisive inquiry during the course of assessment proceeding. One such expense is the expense incurred by an assessee carrying on the business, on the higher education of the son(s)/daughter(s) of the directors/partners/proprietor and which is claimed as deduction by that assessee against the taxable business profits. Attempt of the Revenue remains to find holes in the explanation furnished by the assessee during the course of assessment proceeding showing the business nexus of the said expenditure and to disallow it. Once the expenditure so claimed is disallowed in assessment, matter is taken into appeals at various stages with all sorts of uncertainties creeping in. In fact such claim is a sensitive claim from the stand point of the Revenue and if such claim is disallowed, such situation is fraught with severe consequences for the assessee.

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