INDIA Trends and Developments Contributed by: Mukesh Butani, Seema Kejriwal, Pranoy Goswami and Mansi Mathur, BMR Legal
merely being a subsidiary does not mean that Samsung India was engaged in manufacturing and selling solely at the behest and directives of its parent company. The Court made extensive references to OECD Guidelines on contract man - ufacturing, intangibles and to refute the depart - ment’s allegation of tax fraud and dismissed the appeal of the department. Interestingly, while the tribunal had relied upon the OECD Guidelines of 1995, the High Court also considered the 2022 Guidelines. Business restructuring Business restructuring and deemed interna - tional transactions are other areas where tax - payers are seeing more detailed inquiries. In a recent ruling, the Mumbai Tribunal in the case of Diamond Dimexion [2024] 159 taxmann.com 118 (Mumbai Tribunal), upheld an addition made by the tax administration towards considera - tion paid to shareholders pursuant to a merger. The acquiring company split the consideration into equity, Compulsorily Convertible Deben - tures (CCDs) and cash. The Tribunal upheld the finding of the tax officer that the taxpayer should have received interest on the CCDs and the cash given, which, according to the officer, was deemed a loan/advance. The Delhi Tribu - nal dealt with business restructuring in the case of Mckinsey Knowledge Centre Pvt. Ltd. (Delhi ITAT, ITA No 154/Del/2016). Herein the taxpayer provided research and information services to Mckinsey & Co. Inc., USA on a fixed-rate remu - neration model up to assessment year 2010/11. From the assessment year 2010/11 onwards, the remuneration model was changed to the cost- plus model. The issue in question was whether a change in the remuneration model amounted to business restructuring and whether a sepa - rate exit charge is required for change in the remuneration model. The Tribunal rejected the Revenue’s contention that the taxpayers had
declared higher profits in previous years to avail themselves of a higher amount of deduction under Section 10A. Location savings Regarding the extant legal jurisprudence on location savings in operations, location saving is a pertinent issue for emerging markets like India as multinational enterprises (MNEs) set up shop in these markets and leverage low-cost resourc - es. Such relocation to a low-cost jurisdiction has spurred the Indian Revenue Authority (IRA) to argue that a higher return is warranted for Indian operations because of location savings. The IRA has applied high markups for captive informa - tion technology-enabled service/IT/R&D centres and suggested that India offers location-specific advantages to MNEs such as highly specialised and skilled human-power. The Bombay High Court in the case of Watson Pharma (Income Tax Appeal No 124 of 2016) had upheld a tribunal ruling to the effect that where local comparables are used there is no location-saving advantage and hence no location-saving advantage is war - ranted. Transfer pricing – an issue of fact or an issue of law? A dispute arose in the Indian Transfer Pricing ecosystem as to whether the arm’s length price (ALP) determination including choice of compa - rable companies, choice of filters used, correct - ness of application of filters, choice of method, etc, would be a factual exercise or a question of law. If the ALP determination is merely a factual exercise, then the High Court (HC) cannot admit an appeal arising from these, unless perversity is demonstrated. In a notable ruling in the case of P.CIT v Soft - brands India Private Limited (I.T.A. No 398/2017), the Karnataka HC held the ALP determination
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