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Basis of cost for PLI under TNM method is ‘total operating cost’ and not its fraction such as ‘direct cost’

February 27, 2014[2014] 42 taxmann.com 500 (Delhi - Trib.)/[2014] 31 ITR(T) 255 (Delhi - Trib.)/[2014] 148 ITD 527 (Delhi - Trib.)/[2014] 162 TTJ 689 (Delhi - Trib.)

IT/ILT-I : In case of a composite income, which is partly relatable to operations carried out in India and partly to outside India, a proportionate part of income which is so relatable to operations carried out in India as per section 9(1) has to be charged to tax in terms of Article 7 of India-Korea DTAA

IT/ILT-II : Where assessee, a Korean Company, entered into an agreement as a consortium in India in terms of which it received certain amount as mobilisation charges on account of offshore supply of equipments, since title of goods passed outside India and payment was also received by assessee outside India, no taxable income could be said to accrue in India in terms of section 9(1)(i) and, thus, mobilisation charges in question were not taxable in India.

IT/ILT-II : Amount received by assessee-company for rendering design and engineering services inextricably linked to offshore supplies of equipment, being in nature of technical services, was liable to tax in India as 'fees for technical services' under section 9(1)(vi)

IT/ILT-II : While applying TNMM, when rule 10B of 1962 Rules provides for base as 'cost incurred', it has to be total cost and not any fraction thereof

IT/ILT-II : When TPO embarks upon determination of ALP by considering denominator of 'total cost', all aspects of 'total operating cost' such as cost of goods sold, administration, selling, distribution expenses and depreciation etc. are required to be considered both for assessee and comparables as well

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