The Bangalore Bench of Income-tax Appellate Tribunal held that the tax authority is free to examine the arm’s length price for the taxpayer, regardless of the fact that the arm’s length price as declared by a party to the transaction was accepted. In other words, this does not preclude the tax authority from examining what would be the arm’s length price in the hands of the other party—the taxpayer—to the same transaction.
The taxpayer entered into international transactions that involved payments of royalties and payments for administrative, financial, and marketing services with related parties. The tax authorities eventually accepted income tax returns filed by the related parties, and thus accepted the income declared in these tax returns to be at an arm's length price. In its own proceedings, the taxpayer asserted that because the returns of its related parties had been accepted (and the arm's length price also accepted), the tax authority would have to consider the price to be at arm's length in the hands of the taxpayer.
The tribunal found that income of a related party is not required to be recomputed by reason of determination of the arm’s length price of the other party to the transaction. Also, the tribunal held that in instances when there is an adjustment to the payment amount, the tax authority cannot make a corresponding adjustment that results in a reduction to income.
The case is: Filtrex Technologies Pvt. Ltd. Read an April 2018 report [PDF 808 KB] prepared by the KPMG member firm in India
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.