Lankawin Pty Inc of UK (LI) incorporated in London is a specified foreign company and is a non-resident in India. It received order for data processing services from Srikrishna Datamatics Ltd (SDL) an Indian company (hol
CS Professional · Advanced Tax Laws and Practice · PYQS · December 2020
Lankawin Pty Inc of UK (LI) incorporated in London is a specified foreign company and is a non-resident in India. It received order for data processing services from Srikrishna Datamatics Ltd (SDL) an Indian company (holding 30% shares in Lankawin Pty Inc of UK) during the previous year 1-4-2019 to 31-3-2020. SDL has exercised a valid option for application of Safe Harbour Rules. (Assume that the operating margin required to be shown under the Safe Harbour Rules for the given gross receipts is 18% under Rule 10TD). Particulars/details and information in respect of transactions between both the companies relating to the P.Y. 2019-20 are as under: Particulars/Information (₹ in Crores) Value of international transactions entered into between both 110 Operating Expenses 93 Operating Margin 17 In this back drop, you are required to examine and answer in the context of provisions contained under the Income Tax Act, 1961 the following issues: (a) Whether the two companies are the Associate Enterprises and the transaction between them is an eligible international transaction?
Answer & Explanation:
Lankawin Pty Inc of UK (LI) is a specified foreign company in relation to Srikrishna Datamatics Ltd (SDL) of India and the condition of SDL holding shares carrying not less than 26% of the voting power in Lankawin Pty Inc also stands satisfied. Hence, LI and SDL are deemed to be Associated Enterprises as per section 92A(2) of the Income Tax Act, 1961. Providing of data processing services by SDL, an Indian Company to LI, a foreign company between the associated enterprises is an international transaction. Consequently, the provisions of transfer pricing are applicable on such transaction. Data processing services with the use of information technology falls within the definition of 'information technology enabled services', and is hence, an eligible international transaction.
Topics: Income Tax Act, 1961
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