Section 144C(5) of the Income Tax Act
The decision most relied on for Section 144C(5) is Ishikawajima Harima Heavy Industries Ltd. v. DIT (288 ITR 408), cited in 375 of the 429 judgments on BharatTax that turn on this section.
Leading authorities on Section 144C(5)
Income from offshore supply of goods and services is not taxable in India if the entire transaction, including transfer of ownership and payments, occurs outside India.
Payments by Indian residents to non-resident foreign software suppliers for software are considered royalty, constituting income deemed to accrue in India under section 9(1)(v), thereby requiring tax deduction at source under section 195.
Reimbursements of actual expenses without any profit element are not taxable income. Additionally, mere amendments to the Income-tax Act do not override the provisions of Double Taxation Avoidance Agreements (DTAAs).
When computing the deduction available under Section 10A of the Income-tax Act, communication expenses must be excluded from the total turnover for the purpose of calculating the eligible relief.
The Bright Line Test (BLT) is not a recognized method under the Income-tax Act and Rules for benchmarking advertising, marketing, and promotion (AMP) expenses or for determining the existence of an international transaction or its Arm's Length Price. The Revenue must first establish the existence and price of an international transaction before seeking an ALP adjustment.
The interest rate for benchmarking foreign currency loans advanced to Associated Enterprises should be the market-determined rate applicable to the currency of the loan, such as LIBOR for US Dollar loans, rather than a domestic lending rate like the Indian PLR.
Where an assessee has mixed funds (both interest-bearing and interest-free funds) and makes an interest-free advance or investment, it is presumed that the interest-free funds were utilized first if they are sufficient to cover such advances or investments. This prevents disallowance of interest on borrowed funds under Section 36(1)(iii).
A statute's object is to ascertain legislative intent from its plain language, avoiding any construction that adds, substitutes, or rejects words as meaningless. This principle applies to interpreting statutory deadlines, such as those for Transfer Pricing Officer and Assessing Officer orders under Section 153, requiring strict calculation based on the literal meaning of terms like "before" and "prior to".
The currency in which an amount is to be repaid determines the applicable rate of interest for international transactions. For notional interest on loans granted to Associated Enterprises, the arm's length rate is restricted to LIBOR, and no mark-up on the LIBOR rate is warranted.
This case determines the Arm's Length Price (ALP) for intra-group services and reimbursements, clarifying when charges constitute services warranting a mark-up versus mere pass-through costs. It provides guidance on the circumstances under which an ALP adjustment, including an ALP of 'nil', is appropriate for such transactions.
Judgments on Section 144C(5)
Showing 1–20 of 429 · Page 1 of 22
