India: Inconsistent positions of tax authorities | KPMG | BE

India: Inconsistent positions of tax authorities; same transaction, different years

India: Inconsistent positions of tax authorities

The Ahmedabad Bench of the Income-tax Appellate Tribunal held that the tax authorities cannot take different positions in separate years, concerning the same international transaction agreement.

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For one year, the Transfer Pricing Officer found the activities conducted by the taxpayer to be low-end services, whereas in a earlier year, they were found to be “knowledge process outsourcing” services. The case is: SNL Financial (India) Pvt. Ltd. v. DCIT (ITA No. 770/Ahd/2014)

Summary

The taxpayer—a wholly owned subsidiary of a U.S. based company—was engaged in the business of gathering collating, organizing, arranging, storing, and transmitting financial information. The taxpayer entered into international transactions with a related party, to render data analysis and data entry services. 

  • For one year at issue, the Transfer Pricing Officer categorized the taxpayer as a “knowledge process outsourcing” service provider. 
  • For a second year at issue—and concerning the same international transaction agreement—the taxpayer elected an option under the “safe harbour rule,” and the Transfer Pricing Officer considered the taxpayer to be a “low-end service provider” and categorized the taxpayer as a “business process outsourcing” service provider.

The tribunal returned the case back to the Assessing Officer, with directions to consider why for the same transactions, the taxpayer would be subject to different treatment in separate years. 

 

Read a June 2016 report [PDF 330 KB] prepared by the KPMG member firm in India: Taxpayer considered as BPO in subsequent years, cannot be considered as KPO in earlier year for providing same services

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