Transaction amongst taxpayer and Indian permanent establishment of its overseas group entity does not fall within the ambit of "international transaction" and thus, is not subject to Indian Transfer Pricing provisions
Facts of the case
IJM (India) Infrastructure Ltd ("the taxpayer") is a subsidiary Company of IJMII (Mauritius) Ltd which in turn is a wholly owned subsidiary of IJM Corporation Berhad, Malaysia (IJM Malaysia). During the assessment year under review, the taxpayer has entered the certain transactions with its associated enterprises ("AEs") viz. Delhi based project office [permanent establishment ("PO")] of IJM Malaysia; Delhi based joint-venture ("JV") namely "IJM-IJMIl JV" between taxpayer and IJM Malaysia; the Indian PE, located in Delhi, of Road Builder (M) SDN Bhd, an another group entity/ AE of the taxpayer; and RBM Pati JV (based out of Delhi, India).
The Assessing Officer ("AO") was of the contention that the taxpayer's transactions with its aforesaid AEs (all India based) fall under the domain of "international transactions" under section 92B of Income Tax Act ("the Act") as their management and control is based outside India and consequently are subject to the determination of arm's length price. Based thereon, the AO made reference to the Transfer Pricing Officer ("TPO") who made an upward adjustment of INR 33.04 crore.
During the course of proceedings before Dispute Resolution Panel ("DRP"), the DRP followed the taxpayer's own case relating to previous assessment year to categorically held that the transactions between the taxpayer and it's the project office/ PE of its AEs (including the taxpayer's JVs) cannot be treated as international transaction do not fall under provisions of section 92B(2) of the Act. Aggrieved by the same, the Revenue filed an appeal before Income Tax Appellant Tribunal ["ITAT"/"the Tribunal"]
Tribunal's Ruling
The Tribunal relied on taxpayer own case relating to the AY 2008-09 and Swarnandhra IJMII Integrated Township Development Co. Ltd. Vs. DCIT wherein it was held that the transactions between the taxpayer and the Indian PE of its AEs (i.e. IJM Malaysia & Road Builder (M) SDN Bhd.) along with Delhi based taxpayer's JVs (i.e. IJM-IJMII JV and IJM-NBCC-VRM JV) do not fall within the definition of international transactions. While adjudicating so, the ITAT considered the provisions of sections 92A(1) and 92A(2) of the Act the along with observation drawn by the DRP in the instant case. The Tribunal held that to qualify a transaction as international transaction, at least one among the AEs must be non-resident. Since in the present case both the taxpayer and other parties are the residents for the purpose of Indian Taxation, any transaction between them will not constitute an international transaction.
Nangia's Take
For the taxation purposes, the Indian PE of an overseas entity is considered to be non-resident. However, the ITAT, in instant case, has given due weightage to the merits of the case and considered a contrary view from the TP perspective. The given ITAT ruling provides clarity to all other Indian taxpayers who are facing similar issues while dealing with its overseas group entities' Indian PE.
Source: IJM (India) Infrastructure Ltd.Vs. DCIT [TS-671-ITAT-2016(Hyd)-TP]
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