Transfer Pricing Officer must observe Natural Justice, Relief to MNEs

Sections 92 to 92F contained in Chapter X of the Income Tax Act, 1961 titled “Special Provisions Relating to Avoidance of Tax” were introduced by the Finance Act, 2001 w.e.f. 1.4.2002 with a view to provide an exhaustive legislative framework relating to the fair computation of income arising from international transactions between associated enterprises (“AEs”) having regard to the arms length price (“ALP”) [Central Board of Direct Taxes, Circular No. 14/2001, 2001 252 ITR 65]. Before this amendment in 2002, cross border transactions were regulated under section 92 of the Income Tax Act, 1961 (“the Act”). However, the said section was limited in its scope and application and also employed undefined terms viz. ‘close connection’, ‘adjustment of profits’ and ‘estimation of reasonable profits’ etc.

ING Vysya Bank Ltd. vs The Deputy Director of Income Tax

 

In a recent judgment, the ITAT, Bangalore held has held that a payment made by an Indian company to a non-resident company in pursuance of a software agreement for the usage of ‘shrink wrapped software’ is in the nature of a royalty, and consequently the Indian company has to deduct tax at source under the Indian Income Tax Act.