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: (c) Whether the results shown by SDL be acceptable to department or will SDL be required to make primary adjustment?
Answer & Explanation:
SDL (as given in the problem), should have declared an operating profit margin of not less than 18% in relation to operating expenses so to be covered within the scope of Safe Harbour Rules in accordance with the circumstance mentioned in Rule 10TD. In this case, the operating margin declared is 18.28% [(17/93) × 100)] which is more in accordance with the circumstance mentioned in Rule 10TD. Consequently, the department shall accept the transfer price declared by SDL in respect of such international transaction. Therefore, SDL need not to make any primary adjustment.
Topics: Income Tax Act, 1961
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