SAP LABS INDIA PRIVATE LIMITED versus INCOME TAX OFFICER, CIRCLE 6, BANGALORE

Citation: [2023] 4 S.C.R. 430 · Decided: 19-04-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed

cites 2 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
430
SUPREME COURT REPORTS
[2023] 4 S.C.R.
SAP LABS INDIA PRIVATE LIMITED
v.
INCOME TAX OFFICER, CIRCLE 6, BANGALORE
(Civil Appeal No. 8463 of 2022)
APRIL 19, 2023
[M. R. SHAH AND M. M. SUNDRESH, JJ.]
Income Tax Act, 1961 : ss. 92, 92A to 92CA, 92D, 92E, 92F
and 260 A – Transfer pricing matters – Arm length price,
determination of – Arm length price, determined by the tribunal –
Thereafter, determination of the arm’s length price by the High Court,
in exercise of powers u/s. 260A – Permissibility of - Held: There
cannot be any absolute proposition of law that in all cases where
the tribunal has determined the arm’s length price the same is final
and cannot be the subject matter of scrutiny by the High Court in
an appeal u/s 260A – When the determination of the arm’s length
price is challenged before the High Court, it is always open for the
High Court to consider and examine whether the arm’s length price
has been determined while taking into consideration the relevant
guidelines under the Act and the Rules – It is always open for the
High Court to examine in each case whether the determination of
the arm’s length price and the findings recorded by tribunal while
determining the arm’s length price are perverse or not – Thus, the
impugned judgments and orders passed by the High Court that the
determination of arm’s length price by the tribunal shall be final
against which an appeal u/s. 260 A is not required to be entertained
is quashed and set aside.
Allowing the appeals, the Court
HELD: 1.1 While determining the arm’s length price, the
tribunal has to follow the guidelines stipulated under Chapter X
of the Income Tax Act, 1961, namely, Sections 92, 92A to 92CA,
92D, 92E and 92F of the Act and Rules 10A to 10E of the Rules.
Any determination of the arm’s length price under Chapter X de
hors the relevant provisions of the guidelines, can be considered
as perverse and it may be considered as a substantial question of
law as perversity itself can be said to be a substantial question of
law. Therefore, there cannot be any absolute proposition of law
[2023] 4 S.C.R. 430
430
A
B
C
D
E
F
G
H
431
that in all cases where the tribunal has determined the arm’s
length price the same is final and cannot be the subject matter of
scrutiny by the High Court in an appeal under Section 260A of
the IT Act. When the determination of the arm’s length price is
challenged before the High Court, it is always open for the High
Court to consider and examine whether the arm’s length price
has been determined while taking into consideration the relevant
guidelines under the Act and the Rules. Even the High Court
can also examine the question of comparability of two companies
or selection of filters and examine whether the same is done
judiciously and on the basis of the relevant material/evidence on
record. The High Court can also examine whether the
comparable transactions have been taken into consideration
properly or not, i.e., to the extent non-comparable transactions
are considered as comparable transactions or not. [Para 7][442-
C-G]
1.2. In each case, the High Court should examine whether
the guidelines laid down in the Act and the Rules are followed
while determining the arm’s length price. Therefore, the absolute
proposition of law laid down by the Karnataka High Court in the
case of Softbrands India (P) Ltd. that in the matter of transfer
pricing, determination of the arm’s length price by the tribunal
shall be final and cannot be subject matter of scrutiny and the
High Court is precluded from examining the correctness of the
determination of the arm’s length price by the tribunal in an appeal
under Section 260A of the IT Act on the ground that it cannot be
said to be raising a substantial question of law cannot be accepted.
Within the parameters of Section 260A of the IT Act in an appeal
challenging the determination of the arm’s length price, it is
always open for the High Court to examine in each case whether
while determining the arm’s length price, the guidelines laid down
under the Act and the Rules, are followed or not and whether the
determination of the arm’s length price and the findings recorded
by the tribunal while determining the arm’s length price are
perverse or not. [Para 8][442-H; 443-A-C]
1.3. The impugned judgments and orders passed by the
High Court dismissing the Revenue’s appeals and even the
appeals preferred by the assessees are quashed and set aside
SAP LABS INDIA PRIVATE LIMITED v. INCOME TAX

Excerpt shown. Read the full judgment & AI analysis in Lexace.