THE COMMISSIONER OF INCOME T vs. M/S.ROTORK CONTROLS INDIA PV

TCA/543/2019HC Madras26 August 2022Bench: Hon`ble Mr Justice R. MAHADEVAN4 pages

AI SummaryWithdrawn

What did the High Court hold?

The High Court did not decide the substantial questions of law on their merits. The learned counsel for the Revenue brought to the court's notice CBDT Circular No. 17/2019 dated 08.08.2019, which stipulates that appeals shall not be filed or pursued by the Department before the High Court if the tax effect does not exceed Rs. 1,00,00,000/-. It was submitted that the tax effect in the present appeal was below this threshold limit. Consequently, the High Court, in light of the submission regarding the tax effect being less than the monetary limit, dismissed the appeal as withdrawn. The substantial questions of law were kept open for determination in an appropriate case. No costs were awarded.

What were the facts?

The Revenue, represented by the Commissioner of Income Tax, Chennai, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 14.11.2018 passed by the Income Tax Appellate Tribunal (ITAT), Madras 'D' Bench. The appeal pertained to assessment year 2013-14 and concerned a dispute regarding transfer pricing adjustments made by the Transfer Pricing Officer (TPO) in relation to management fees paid by the assessee, M/s. Rotork Controls India Pvt. Ltd., to its associate enterprise. The ITAT had deleted the downward adjustment made by the TPO. The High Court was hearing the appeal.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was correct in deleting the downward adjustment made by the TPO concerning management fees paid by the assessee to its associate enterprise, solely on the basis that the assessee proved incurring the expenditure, without examining the merits of the TPO's contentions regarding the services received. 2. Whether the Tribunal correctly disregarded the OECD guidelines, which suggest that services rendered by an associate enterprise to the assessee might fall under shareholder/stewardship functions, thus not warranting separate payment. 3. Whether the determination of Arm's Length Price should be on a transaction-to-transaction basis rather than a consolidated basis, and if the service fee needed separate benchmarking, justifying the TPO's rejection of the assessee's TNM method in favor of the CUP method. The Revenue argued that the Tribunal erred by not considering the nature of services and their classification under OECD guidelines, and by not adhering to transaction-specific benchmarking. The assessee's arguments are not explicitly recorded in the provided text.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

T.C.A.No.543 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 26.08.2022 CORAM : THE HON'BLE MR. JUSTICE R. MAHADEVAN AND THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A.No.543 of 2019 The Commissioner of Income Tax, Chennai. ... Appellant Versus M/s.Rotork Controls India Pvt. Ltd., 23B, Ambattur Industrial Estate (North), Ambattur, Chennai - 600 098. ... Respondent (PAN No.AACR3438C) Appeal preferred under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras “D” Bench, dated 14.11.2018 in I.TA.No.2581/Chny/2017. For Appellant : Mr.T.Ravi Kumar Senior Standing Counsel For Respondent : Mr.N.V.Balaji Page 1/4 https://www.mhc.tn.gov.in/judis T.C.A.No.543 of 2019 J U D G M E N T (Judgment was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant / Revenue, challenging the order dated 14.11.2018 passed by the Income Tax Appellate Tribunal, Madras 'D' Bench in I.T.A.No.2581/Chny/2017, relating to the assessment year 2013-14, by raising the following substantial questions of law:- "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in deleting the downward adjustment made by the Transfer Pricing Officer in respect of management fees paid by the assessee to its Associate Enterprise, merely on the ground that the assessee had proved incurring of such expenditure without going into the merits of contention raised by the TPO in respect of the services received by the assessee? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering the fact that as per the OECD guidelines in respect of the services rendered by the Associate Enterprise to the Assessee fell within the premises of shareholders functions / stewardship services warranting no separate payment for the same? (iii) Whether for the purpose of determination of Arms Length Price, the price is to be determined on a transaction to transaction basis and not on a consolidated basis as done by the assessee and that the service fee had to be Benchmarked separately by analyzing each of the actual services received from its Associate Enterprise and accordingly Transfer Pricing Officer Page 2/4 https://www.mhc.tn.gov.in/judis T.C.A.No.543 of 2019 was justified in rejecting TNM Method adopted by the Assessee instead of adopting the Comparable Uncontrolled Price (CUP) method which is the most appropriate method to be followed?" 2. When the matter was taken up for consideration, the learned counsel for the appellant / Revenue brought to the notice of this court the Circular No.17/2019 dated 08.08.2019 issued by the Central Board Direct Taxes, wherein, it is stipulated that appeal shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). It is also submitted that the tax effect in this appeal is less than the threshold limit. 3. In the light of the aforesaid submissions made by the learned counsel for the appellant / Revenue, the present appeal, wherein, the tax effect is said to be less than the monetary limit imposed, is dismissed as withdrawn, keeping open the substantial questions of law for determination in an appropriate case. No costs. (R.M.D., J.) (M.S.Q., J.) 26.08.2022 r n s

Internet : Yes.

Index : Yes / No. Page 3/4 https://www.mhc.tn.gov.in/judis T.C.A.No.543 of 2019 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. r n s To 1. The Income Tax Appellate Tribunal Madras 'D' Bench, Chennai. 2. The Commissioner of Income Tax (Appeals) - 3, Chennai. 3. The Deputy Commissioner of Income Tax, Corporate Circle-5(2), Chennai. T.C.A.No.543 of 2019 26.08.2022 Page 4/4 https://www.mhc.tn.gov.in/judis

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