Section 144C(5) of the Income Tax Act
Income-tax Act, 2025: s.275
Section 144C(5) falls under section 144C of the Income-tax Act, 1961, which corresponds to section 275 (Reference to Dispute Resolution Panel) of the Income-tax Act, 2025.
Read section 275 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 144C(5) is CIT v. Samsung Electronics Ltd. (345 ITR 494), cited in 461 of the 865 judgments on BharatTax that turn on this section.
Leading authorities on Section 144C(5)
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.
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.
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.
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.
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).
Where proceedings are initiated under Section 147, but the assessment is completed under Section 143(3), it is not a prerequisite that the assessee must have filed a return under Section 139.
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.
When determining the arm's length price for interest on a foreign currency loan advanced to an Associated Enterprise, the Indian Prime Lending Rate is not applicable. Instead, the interest rate should be benchmarked based on the prevailing foreign currency rate, such as EURIBOR, or the rate in the country where the loan is received/consumed.
