TaxTMI 
TaxTMI 
2011 (5) TMI 669
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.... Enterprises in India cannot be said to be entirely independent of the policies, decisions and influences of its head office in China." 2. The assessee company is a domestic company having residential status as resident. It is one of the group companies of TIENS, a Chinese group of companies. It is in the business of trading/distribution of food supplements and health care equipment. The concerned products are manufactured abroad, in China, or at other places, by a group concern of the assessee, including Tianjin Tianshi Biological Development Company Ltd. ('TTBDC'). TTBDC has established a Permanent Establishment (PE) in India. 3. During the year, the assessee company made purchase transactions of Rs. 174972636 from the PE of TTBDC. The AO made a reference to the Transfer Pricing officer (TPO) for determination of Arm's Length Price u/s 92CA(3) of the I.T. Act in respect of these purchase transactions. The TPO, vide his order dated 01.04.2009, directed the AO to reduce Rs. 9137476 from the purchase prices paid to the Associate Enterprise (AE) in respect of the Health Equipment Segment and Rs. 18738797 from the price paid to the (AE), concerning the Food Supplements Segment. As s....
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....d to be at ALP. It has been argued that the CIT(A) has erred on observing that the provisions of Chapter X of the I.T. Act are not applicable to the transactions involved herein, as the transactions involved are not cross border transactions since both, the seller as well as the purchaser are subjected to Indian tax jurisdiction; that remarkably, the CIT(A) has himself observed existence of an AE and a foreign company in the status of non-resident to be the basic conditions requisite to invoke the provisions of transfer pricing; that still, the addition has been deleted, despite the applicability of the above specific provisions; that the CIT(A) has erred in observing that the legislative intent behind the enactment of section 92B, which defines "international transaction", is to see "profit motive"; that this is erroneous, the intention of the legislature is to be seen only where the there is an ambiguity in the provision as held in effect, "Instrumentarium Corpn. In re" [2005] 272 ITR 499/143 Taxman 1 (AAR - N. Delhi); that in the case at hand there was no requirement to go to the intention of the legislature behind the enactment of section 92B of the Act, since the provisions of....
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....BDC; that the said AE is a permanent establishment of TTBDC in India; that it is a full-fledged establishment functioning in India and maintaining separate books of account; that it is independently assessed to income tax in India, for profits attributable to its functioning in India; that it has a PAN and is assessed in the jurisdiction of the DDIT, International Taxation, Circle 2(2), New Delhi; that the AE imported goods from its head office at China and from various other AEs in China and in other countries, besides from certain other non related parties abroad; that these imports were regular commercial transactions, having proper commercial invoices raised in the name of the AE in India; that import duty payments with regard to such imports were made in India; that the delivery was made in the name of the AE in India; that the absolute title to the goods passed in the name of the AE in India; that it was after such import that the AE sold the goods to the assessee company; that this sale, obviously, originated in India, having separate sale invoices; that such sales were the regular commercial transactions, attracting sales-tax, VAT and other regulations; that therefore, ther....
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....d have perused the material on record. The question here is as to whether CIT(A) has correctly held the provisions of Chapter X of the Income Tax Act, relating to transfer pricing, to be not applicable. Undisputedly, the facts are that the assessee is a domestic company, having status of "resident". It is one of the group companies of the China based TIENS group of companies. It trades/distributes food supplements and health care equipment manufactured in China and at other places, by group concerns. TTBDC, another group entity incorporated in China, has established a foreign branch office in India, having status of "non-resident". This is the Permanent Establishment of TTBDC in India. This PE of TTBDC, Associate Enterprise of the assessee company. The PE imports products from its head office in China and from other AEs in China and other places. These products are resold to the assessee company in India. The assessee company, in turn, sells these products in India through a network of franchises and distributors. On the purchases made by the PE from abroad, import duty is paid. The products come into India in the absolute title and name of the PE. The PE, being a foreign company, ....
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.... present case, where a transaction is entered into by AEs being a resident and a non-resident, the transaction shall amount to an international transaction falling u/s 92B(1) of the Act. In other words, where either or both of the AEs are non-resident, would amount to an international transaction within the meaning of section 92B(1) of the Act. That being so, it does not matter that the transactions in question are not 'cross border transactions' as envisaged by CIT(A). The AE is a non-resident company. As such, the requirement of section 92B(1) is amply met and the transactions concerned are international transactions within the meaning of the said section. Therefore, the CIT(A) has erred in holding that Chapter X of the Act is not invokable. 15. The finding of the CIT(A) to the effect that no motive to shift the profits outside India or to evade taxes in India, in the related party transactions which has been ascribed by the AO, is also not determinative. To reiterate, once the transactions fall under the category of international transactions within the meaning of section 92B(1) of the Act, the transfer pricing mechanism does get activated and it has rightly been set into motio....