> As per amended provisions, Form 3CEB filing date is 31st October 2020
for FY 2019-20.
> Dispute Resolution Panel forum is now not limited to Transfer
Pricing disputes only but also allowed to non residents for all disputes.
> Provisions of interest limitation (Section 94B) would not apply to
the interest paid to an Indian PE i.e. branch of a non-resident bank.
> Advance Pricing Agreement (Section 92CC) and Safe Harbour Rules
(Section 92CB) include the determination of attribution of profit to PE
/business connection.
TRANSFER PRICING PROPOSALS:
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1. Section 92F (iv): “Specified Date”-Rationalization
of due date of filing of Accountant’s Report (Form 3CEB)
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Existing Provisions (Relevant Provision Only)
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Amended Provisions
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Analysis of Amendments
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92F (iv). “Specified date”
139 (1) Explanation 2
Explanation 2—In this sub-section, “due date”
means,—
a) where the assessee other than an assessee referred to in
clause (aa) is—
I. a company; or
II. a person (other than a company) whose accounts are required to be
audited under this Act or under any other law for the time being in force; or
III. a
aa) in the case of an assessee who is required to furnish
a report referred to in section 92E, the 30th day of November of the
assessment year;
b) in the case of a person other than a company, referred to in the
first proviso to this sub-section, the 31st day of October of the assessment
year;
c) in the case of any other assessee, the 31st day of July of the
assessment year.
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92F (iv). “Specified date” means the date one
month prior to the due date for furnishing the return on income under
sub-section (1) of section 139 for the relevant assessment year”.
139 (1) Explanation 2
Explanation 2—In this sub-section, “due date”
means,—
a) where the assessee other than an assessee referred to in
clause (aa) is—
I. a company; or
II. a person (other than a company) whose accounts are required to be
audited under this Act or under any other law for the time being in force; or
III. a partner of a firm whose accounts are required to be audited
under this Act or under any other law for the time being in
force, the 31st day of October of the assessment year;
aa) in the case of an assessee who is required to furnish a
report referred to in section 92E, the 30th day of November of the
assessment year;
b) in the case of a person other than a company, referred to in the
first proviso to this sub-section, the 31st day of October of the assessment
year;
c) in the case of any other assessee, the 31st day of July of the
assessment year.
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All the provisions that mandate filing of an audit report along with
the return of income or by the due date of filing of return of income would
be amended to require the same to be furnished at least one month prior to
the due date of filing of such return of income.
Hence, the date of filing the Accountant’s Report i.e. Form 3CEB is
also 31st October of the relevant assessment year instead of 30th November.
This amendment will take effect from 1st April, 2020
i.e. applicable from the FY 2019-20 relevant to the assessment year 2020-21
and subsequent years.
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2. Section 144C: Reference to Dispute
Resolution Panel
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Existing Provisions (Relevant Provision Only)
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Amended Provisions
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Analysis of Amendments
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1) The Assessing Officer shall, notwithstanding anything to the
contrary contained in this Act, in the first instance, forward a draft of the
proposed order of assessment (hereafter in this section referred to as the
draft order) to the eligible assessee if he proposes to make, on or after the
1st day of October, 2009, any variation
(2) to (14)…….
15) For the purposes of this section,—
a) “Dispute Resolution Panel” means a collegium comprising of three
Principal Commissioners or Commissioners of Income-tax constituted by the
Board for this purpose;
b) “eligible assessee” means,—
(i) any person in whose case the variation referred to in sub-section
(1) arises as a consequence of the order of the Transfer Pricing Officer
passed under sub-section (3) of section 92CA; and
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1) The Assessing Officer shall, notwithstanding anything to the
contrary contained in this Act, in the first instance, forward a draft of the
proposed order of assessment (hereafter in this section referred to as the
draft order) to the eligible assessee if he proposes to make, on or after the
1st day of October, 2009, any variation which is prejudicial
to the interest of such assessee.
(2) to (14)…….
15) For the purposes of this section,—
a) “Dispute Resolution Panel” means a collegium comprising of three
Principal Commissioners or Commissioners of Income-tax constituted by the
Board for this purpose;
b) “eligible assessee” means,—
(i) any person in whose case the variation referred to in
sub-section (1) arises as a consequence of the order of the Transfer Pricing
Officer passed under sub-section (3) of section 92CA; and
(ii) any non-resident not being a company, or any foreign company.
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With this proposed amendment, scope of said section has expanded to
include all the disputes of non-residents.
Therefore, now the Dispute Resolution Panel forum is not limited to
Transfer Pricing disputes only but also allowed to non residents for all
disputes.
This amendment will take effect from 1st April,
2020. Thus, said provision will be applicable, if the Assessing Officer
proposes to make any variation after this date.
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3. Section 94B: Limitation on
interest deduction in certain cases.
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Existing Provisions
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Amended Provisions
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Analysis of Amendments
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1) Notwithstanding anything contained in this Act, where an
Indian company, or a permanent establishment of a foreign company in India,
being the borrower, incurs any expenditure by way of interest or of similar
nature exceeding one crore rupees which is deductible in computing income
chargeable under the head “Profits and gains of business or profession” in
respect of any debt issued by a non-resident, being an associated enterprise
of such borrower, the interest shall not be deductible in computation of
income under the said head to the extent that it arises from excess interest,
as specified in sub-section (2) :
Provided that where the debt is issued by a lender which is not
associated but an associated enterprise either provides an implicit or
explicit guarantee to such lender or deposits a corresponding and matching
amount of funds with the lender, such debt shall be deemed to have been
issued by an associated enterprise.
2) For the purposes of sub-section (1), the excess interest shall mean
an amount of total interest paid or payable in excess of thirty per cent of
earnings before interest, taxes, depreciation and amortisation of the
borrower in the previous year or interest paid or payable to associated
enterprises for that previous year, whichever is less.
3) Nothing contained in sub-section (1) shall apply to an Indian
company or a permanent establishment of a foreign company which is engaged in
the business of banking or insurance.
4) Where for any assessment year, the interest expenditure is
not wholly deducted against income under the head “Profits and gains of
business or profession”, so much of the interest expenditure as has not been
so deducted, shall be carried forward to the following assessment year or
assessment years, and it shall be allowed as a deduction against the profits
and gains, if any, of any business or profession carried on by it and
assessable for that assessment year to the extent of maximum allowable
interest expenditure in accordance with sub-section (2):
Provided that no interest expenditure shall be carried forward
under this sub-section for more than eight assessment years immediately
succeeding the assessment year for which the excess interest expenditure was
first computed.
5) For the purposes of this section, the expressions—
(i) “associated enterprise” shall have the meaning assigned to it in
sub-section (1) and sub-section (2) of section 92A;
(ii) “debt” means any loan, financial instrument, finance lease,
financial derivative, or any arrangement that gives rise to interest,
discounts or other finance charges that are deductible in the computation of
income chargeable under the head “Profits and gains of business or
profession”;
(iii) “permanent establishment” includes a fixed place of business
through which the business of the enterprise is wholly or partly carried on.
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1) Notwithstanding anything contained in this Act, where an Indian
company, or a permanent establishment of a foreign company in India, being
the borrower, incurs any expenditure by way of interest or of similar nature
exceeding one crore rupees which is deductible in computing income chargeable
under the head “Profits and gains of business or profession” in respect of
any debt issued by a non-resident, being an associated enterprise of such
borrower, the interest shall not be deductible in computation of income under
the said head to the extent that it arises from excess interest, as specified
in sub-section (2) :
Provided that where the debt is issued by a lender which is not
associated but an associated enterprise either provides an implicit or
explicit guarantee to such lender or deposits a corresponding and matching
amount of funds with the lender, such debt shall be deemed to have been
issued by an associated enterprise.
1A) Nothing contained in sub section 1 shall
apply to Interest paid in respect of a debt issued by a lender which is a
permanent establishment in India of a non-resident, being a person engaged in
the business of banking.
2) For the purposes of sub-section (1), the excess interest
shall mean an amount of total interest paid or payable in excess of thirty
per cent of earnings before interest, taxes, depreciation and amortisation of
the borrower in the previous year or interest paid or payable to associated
enterprises for that previous year, whichever is less.
3) Nothing contained in sub-section (1) shall apply to an Indian
company or a permanent establishment of a foreign company which is engaged in
the business of banking or insurance.
4) Where for any assessment year, the interest expenditure is
not wholly deducted against income under the head “Profits and gains of
business or profession”, so much of the interest expenditure as has not been
so deducted, shall be carried forward to the following assessment year or
assessment years, and it shall be allowed as a deduction against the profits
and gains, if any, of any business or profession carried on by it and
assessable for that assessment year to the extent of maximum allowable
interest expenditure in accordance with sub-section (2):
Provided that no interest expenditure shall be carried forward
under this sub-section for more than eight assessment years immediately
succeeding the assessment year for which the excess interest expenditure was
first computed.
5) For the purposes of this section, the expressions—
(i) “associated enterprise” shall have the meaning assigned to
it in sub-section (1) and sub-section (2) of section 92A;
(ii) “debt” means any loan, financial instrument, finance
lease, financial derivative, or any arrangement that gives rise to interest,
discounts or other finance charges that are deductible in the computation of
income chargeable under the head “Profits and gains of business or
profession”;
(iii) “permanent establishment” includes a fixed place of
business through which the business of the enterprise is wholly or partly
carried on.
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The proposed amendment u/s 94B of the Act provides that provisions of
interest limitation would not apply to the interest paid to an Indian PE i.e.
branch of a non-resident bank and hence, would be excluded from the
application of the thin capitalization rules under the transfer pricing
provisions.
This amendment will take effect from 1st April, 2021
i.e. applicable from the FY 2020-21 relevant to the assessment year 2021-22
and subsequent years.
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4. Section 92CB and Section
92CC: Safe Harbour Rules and Advance Pricing Agreements
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Existing Provisions
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Amended Provisions
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Analysis of Amendments
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Section 92CB: Safe Harbour Rules
2) The Board may, for the purposes of sub-section (1), make rules for
safe harbour.
Explanation.—For the purposes of this section, “safe harbour” means
circumstances in which the income-tax authorities shall accept the transfer
price declared by the assessee.
Section 92CC: Advance Pricing Agreements
4) The agreement referred to in sub-section (1) shall be valid for
such period not exceeding five consecutive previous years as may be specified
in the agreement.
5) The advance pricing agreement entered into shall be binding—
(a) on the person in whose case, and in respect of the
transaction in relation to which, the agreement has been entered into; and
(b) on the Principal Commissioner or Commissioner, and the
income-tax authorities subordinate to him, in respect of the said person and
the said transaction.
6) The agreement referred to in sub-section (1) shall not be binding
if there is a change in law or facts having bearing on the agreement so
entered.
7) The Board may, with the approval of the Central Government, by an
order, declare an agreement to be void ab initio, if it finds
that the agreement has been obtained by the person by fraud or
misrepresentation of facts.
8) Upon declaring the agreement void ab initio,—
(a) all the provisions of the Act shall apply to the person as
if such agreement had never been entered into; and
(b) notwithstanding anything contained in the Act, for the
purpose of computing any period of limitation under this Act, the period
beginning with the date of such agreement and ending on the date of order
under sub-section (7) shall be excluded:
Provided that where immediately after the exclusion of the
aforesaid period, the period of limitation, referred to in any provision of
this Act, is less than sixty days, such remaining period shall be extended to
sixty days and the aforesaid period of limitation shall be deemed to be
extended accordingly.
9) The Board may, for the purposes of this section, prescribe a scheme
specifying therein the manner, form, procedure and any other matter generally
in respect of the advance pricing agreement.
10) Where an application is made by a person for entering
into an agreement referred to in sub-section (1), the proceeding shall be
deemed to be pending in the case of the person for the purposes of the Act.
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Section 92CB:
1) The determination of-
a) Income referred to in clause (i) of sub
section (1) of section 9; or
b) arm’s length price
under section 2C or section 92CA shall be
subject to safe harbour rules.
2) The Board may, for the purposes of sub-section (1), make rules for
safe harbour.
Explanation.—For the purposes of this section, “safe harbour” means
circumstances in which the income-tax authorities shall accept the transfer
price declared by the assessee.
Section 92CC: Advance Pricing Agreements
1) The Board, with the approval of the
Central Government, may enter into an advance pricing agreement with any
person, determining the
a) arm’s length price or specifying
the manner in which arm’s length price is to be determined, in relation to an
international transaction to be entered into by that person.
b) Income referred to in clause (i) of
sub section (1) of section 9 or specifying the manner in which said
income is to be determined, as is reasonable attributed to the operations
carried out in India by or on behalf of that person, being a non-resident
2) The manner of determination of arm’s
length price referred to in clause (b) of sub-section (1), may include the
methods referred to in sub-section (1) of section 92C or the
methods provided by the Rules made under this Act, respectively, with such
adjustments or variations, as may be necessary or expedient so to do.
3) Notwithstanding anything contained
in section 92C or section 92CA or the methods provided by the
Rules made under this Act, the arm’s length price of any international
transaction or the income referred to in clause (b) of sub-section (1), in
respect of which the advance pricing agreement has been entered into, shall
be determined in accordance with the advance pricing agreement so entered.
4) The agreement referred to in sub-section (1) shall be valid
for such period not exceeding five consecutive previous years as may be
specified in the agreement.
5) The advance pricing agreement entered into shall be binding—
(a) on the person in whose case, and in respect of the
transaction in relation to which, the agreement has been entered into; and
(b) on the Principal Commissioner or Commissioner, and the
income-tax authorities subordinate to him, in respect of the said person and
the said transaction.
6) The agreement referred to in sub-section (1) shall not be binding
if there is a change in law or facts having bearing on the agreement so
entered.
7) The Board may, with the approval of the Central Government,
by an order, declare an agreement to be void ab initio, if it
finds that the agreement has been obtained by the person by fraud or
misrepresentation of facts.
8) Upon declaring the agreement void ab initio,—
(a) all the provisions of the Act shall apply to the person as
if such agreement had never been entered into; and
(b) notwithstanding anything contained in the Act, for the
purpose of computing any period of limitation under this Act, the period
beginning with the date of such agreement and ending on the date of order
under sub-section (7) shall be excluded:
Provided that where immediately after
the exclusion of the aforesaid period, the period of limitation, referred to
in any provision of this Act, is less than sixty days, such remaining period
shall be extended to sixty days and the aforesaid period of limitation shall
be deemed to be extended accordingly.
9) The Board may, for the purposes of this section, prescribe a scheme
specifying therein the manner, form, procedure and any other matter generally
in respect of the advance pricing agreement.
(9A) The agreement referred to in sub-section
(1), may, subject to such conditions, procedure and manner as may be
prescribed, provide for determining the-
a) arm’s length price or specify the manner
in which arm’s length price shall be determined in relation to the
international transaction entered into by the person;
b) income referred to in clause (i) of
sub-section (1) of section 9, or specifying the manner in which said income
is to be determined, as is reasonably attributable to the operations carried
out in India by or on behalf of that person, being a
non-resident, during any period not exceeding four previous years
preceding the first of the previous years referred to in sub-section (4), and
the arm’s length price of such international transaction or the income of
such person shall be determined in accordance with the said agreement.
10) Where an application is made by a person for entering into an
agreement referred to in sub-section (1), the proceeding shall be deemed to
be pending in the case of the person for the purposes of the Act.
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The purpose behind such amendment is that the issue of attribution of
profit to the PE has always been a subject matter of litigation which
resulted in increased or long pending cases, as the Assessing Officers often
resort to ad-hoc attribution of profits to PE without any reasonable and
cogent basis.
Hence, in order to provide more certainty and clarity to assessee, the
determination of profits attributable to a permanent establishment (PE) in
India of a non-resident brought within the scope of the Advance Pricing
Agreement (APA) Rules and the Safe Harbour Regime.
This amendment will take effect from 1st April, 2020 i.e. applicable
from the FY 2019-20 relevant to the assessment year 2020-21 and subsequent
years.
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