Rule-10TC, Income-tax Rules

 Rule-10TC, Income-tax Rules

[Eligible international transaction.

10TC. 'Eligible international transaction' means an international transaction between the eligible assessee and its associated enterprise, either or both of whom are non-resident, and which comprises of:

 (i)  provision of software development services;

(ii)  provision of information technology enabled services;

(iii) provision of knowledge process outsourcing services;

(iv) advance of intra-group loan;

(v)  provision of corporate guarantee, where the amount guaranteed,—

(a)   does not exceed one hundred crore rupees; or

(b)  exceeds one hundred crore rupees, and the credit rating of the associated enterprise, done by an agency registered with the Securities and Exchange Board of India, is of the adequate to highest safety;

(vi)  provision of contract research and development services wholly or partly relating to software development;

(vii)  provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs;

(viii)  manufacture and export of core auto components; 1[***]

 (ix)  manufacture and export of non-core auto components 2[; or]

by the eligible assessee.

3[(x) receipt of low value-adding intra-group services from one or more members of its group,]

Rule-10TB, Income-tax Rules

 Rule-10TB, Income-tax Rules

[Eligible assessee.

10TB. (1) Subject to the provisions of sub-rules (2) and (3), the 'eligible assessee' means a person who has exercised a valid option for application of safe harbour rules in accordance with rule 10TE, and—

 (i)  is engaged in providing software development services or information technology enabled services or knowledge process outsourcing services, with insignificant risk, to a non-resident associated enterprise (hereinafter referred as foreign principal);

(ii)  has made any intra-group loan;

(iii)  has provided a corporate guarantee;

(iv) is engaged in providing contract research and development services wholly or partly relating to software development, with insignificant risk, to a foreign principal;

(v)  is engaged in providing contract research and development services wholly or partly relating to generic pharmaceutical drugs, with insignificant risk, to a foreign principal; 1[***]

(vi) is engaged in the manufacture and export of core or non-core auto components and where ninety per cent or more of total turnover during the relevant previous year is in the nature of original equipment manufacturer sales 2[; or]

3[(vii) is in receipt of low value-adding intra-group services from one or more members of its group.]

(2) For the purposes of identifying an eligible assessee, with insignificant risk, referred to in item (i) of sub-rule (1), the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard to the following factors, namely:—

(a) the foreign principal performs most of the economically significant functions involved, including the critical functions such as conceptualisation and design of the product and providing the strategic direction and framework, either through its own employees or through its other associated enterprises, while the eligible assessee carries out the work assigned to it by the foreign principal;

(b)  the capital and funds and other economically significant assets including the intangibles required, are provided by the foreign principal or its other associated enterprises, and the eligible assessee is only provided a remuneration for the work carried out by it;

(c)  the eligible assessee works under the direct supervision of the foreign principal or its associated enterprise which not only has the capability to control or supervise but also actually controls or supervises the activities carried out through its strategic decisions to perform core functions as well as by monitoring activities on a regular basis;

(d)  the eligible assessee does not assume or has no economically significant realised risks, and if a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the eligible assessee is doing so, the contractual terms shall not be the final determinant;

(e)  the eligible assessee has no ownership right, legal or economic, on any intangible generated or on the outcome of any intangible generated or arising during the course of rendering of services, which vests with the foreign principal as evident from the contract and the conduct of the parties.

(3) For the purposes of identifying an eligible assessee, with insignificant risk, referred to in items (iv) and (v) of sub-rule (1), the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard to the following factors, namely:—

(a)  the foreign principal performs most of the economically significant functions involved in research or product development cycle, including the critical functions such as conceptualisation and design of the product and providing the strategic direction and framework, either through its own employees or through its other associated enterprises while the eligible assessee carries out the work assigned to it by the foreign principal;

(b) the foreign principal or its other associated enterprises provides the funds or capital and other economically significant assets including intangibles required for research or product development and also provides a remuneration to the eligible assessee for the work carried out by it;

(c) the eligible assessee works under the direct supervision of the foreign principal or its other associated enterprise which has not only the capability to control or supervise but also actually controls or supervises research or product development, through its strategic decisions to perform core functions as well as by monitoring activities on a regular basis;

(d)  the eligible assessee does not assume or has no economically significant realised risks, and if a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the eligible assessee is doing so, the contractual terms shall not be the final determinant;

(e)  the eligible assessee has no ownership right, legal or economic, on the outcome of the research which vests with the foreign principal and is evident from the contract as well as the conduct of the parties.]

Rule-10TA, Income-tax Rules

 Rule-10TA, Income-tax Rules

[Safe Harbour Rules for International Transactions]

Definitions.

10TA. For the purposes of this rule and rule 10TB to rule 10TG,—

1[(a) "accountant" means an accountant referred to in the Explanation below sub-section (2) of section 288 of the Act and includes any person recognised for undertaking cost certification by the Government of the country where the associated enterprise is registered or incorporated or any of its agencies, who fulfils the following conditions, namely:—

  (I) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then,—

  (i) the entity or its affiliates have presence in more than two countries; and

 (ii) the annual receipt of the entity in the year preceding the year in which cost certification is undertaken exceeds ten crore rupees;

 (II) if he is pursuing the profession of accountancy individually or is a valuer then,—

  (i) his annual receipt in the year preceding the year in which cost certification is undertaken, from the exercise of profession, exceeds one crore rupees; and

 (ii) he has professional experience of not less than ten years.]

2[(aa)] "contract research and development services wholly or partly relating to software development" means the following, namely:—

  (i)  research and development producing new theorems and algorithms in the field of theoretical computer science;

 (ii)  development of information technology at the level of operating systems, programming languages, data management, communications software and software development tools;

(iii)  development of Internet technology;

(iv)  research into methods of designing, developing, deploying or maintaining software;

(v)  software development that produces advances in generic approaches for capturing, transmitting, storing, retrieving, manipulating or displaying information;

(vi)  experimental development aimed at filling technology knowledge gaps as necessary to develop a software programme or system;

(vii) research and development on software tools or technologies in specialised areas of computing (image processing, geographic data presentation, character recognition, artificial intelligence and such other areas);or

(viii) upgradation of existing products where source code has been made available by the principal 3[, except where the source code has been made available to carry out routine functions like debugging of the software];

(b)  "core auto components" means,—

 (i)  engine and engine parts, including piston and piston rings, engine valves and parts cooling systems and parts and power train components;

(ii)  transmission and steering parts, including gears, wheels, steering systems, axles and clutches;

(iii)  suspension and braking parts, including brake and brake assemblies, brake linings, shock absorbers and leaf springs;

(c) "corporate guarantee" means explicit corporate guarantee extended by a company to its wholly owned subsidiary being a non-resident in respect of any short-term or long-term borrowing.

Explanation.—For the purposes of this clause, explicit corporate guarantee does not include letter of comfort, implicit corporate guarantee, performance guarantee or any other guarantee of similar nature;

4[(ca) "employee cost" includes,—

   (i) salaries and wages;

  (ii) gratuities;

 (iii) contribution to Provident Fund and other funds;

 (iv) the value of perquisites as specified in clause (2) of section 17 of the Act;

  (v) employment related allowances, like medical allowance, dearness allowance, travel allowance and any other allowance;

 (vi) bonus or commission by whatever name called;

(vii) lump sum payments received at the time of termination of service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and similar payments;

(viii) expenses incurred on contractual employment of persons performing tasks similar to those performed by the regular employees;

 (ix) outsourcing expenses, to the extent of employee cost, wherever ascertainable, embedded in the total outsourcing expenses:

Provided that where the extent of employee cost embedded in the total outsourcing expenses is not ascertainable, eighty per cent of the total outsourcing expenses shall be deemed to be the employee cost embedded in the total outsourcing expenses;

  (x) recruitment expenses;

 (xi) relocation expenses;

(xii) training expenses;

(xiii) staff welfare expenses; and

(xiv) any other expenses related to employees or the employment;]

(d) "generic pharmaceutical drug" means a drug that is comparable to a drug already approved by the regulatory authority in dosage form, strength, route of administration, quality and performance characteristics, and intended use;

(e) "information technology enabled services" means the following business process outsourcing services provided mainly with the assistance or use of information technology, namely:—

 (i)  back office operations;

(ii)  call centres or contact centre services;

(iii) data processing and data mining;

(iv) insurance claim processing;

(v)  legal databases;

(vi) creation and maintenance of medical transcription excluding medical advice;

(vii) translation services;

(viii) payroll;

(ix)  remote maintenance;

 (x)  revenue accounting;

(xi)  support centres;

(xii) website services;

(xiii) data search integration and analysis;

(xiv) remote education excluding education content development; or

(xv) clinical database management services excluding clinical trials,

but does not include any research and development services whether or not in the nature of contract research and development services;

(f)  "intra-group loan" means loan advanced to wholly owned subsidiary being a non-resident, where the loan—

  (i)  is sourced in Indian rupees;

 (ii)  is not advanced by an enterprise, being a financial company including a bank or a financial institution or an enterprise engaged in lending or borrowing in the normal course of business; and

(iii)  does not include credit line or any other loan facility which has no fixed term for repayment;

(g) "knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely:—

 (i)  geographic information system;

(ii)  human resources services;

(iii) engineering and design services;

(iv) animation or content development and management;

(v)  business analytics;

(vi) financial analytics; or

(vii) market research,

but does not include any research and development services whether or not in the nature of contract research and development services;

5[(ga) "low value-adding intra-group services" means services that are performed by one or more members of a multinational enterprise group on behalf of one or more other members of the same multinational enterprise group and which,—

   (i) are in the nature of support services;

  (ii) are not part of the core business of the multinational enterprise group, i.e., such services neither constitute the profit-earning activities nor contribute to the economically significant activities of the multinational enterprise group;

 (iii) are not in the nature of shareholder services or duplicate services;

 (iv) neither require the use of unique and valuable intangibles nor lead to the creation of unique and valuable intangibles;

  (v) neither involve the assumption or control of significant risk by the service provider nor give rise to the creation of significant risk for the service provider; and

 (vi) do not have reliable external comparable services that can be used for determining their arm's length price, but does not include the following services, namely:—

  (i) research and development services;

 (ii) manufacturing and production services;

(iii) information technology (software development) services;

(iv) knowledge process outsourcing services;

 (v) business process outsourcing services;

(vi) purchasing activities of raw materials or other materials that are used in the manufacturing or production process;

(vii) sales, marketing and distribution activities;

(viii) financial transactions;

(ix) extraction, exploration, or processing of natural resources; and

 (x) insurance and reinsurance;]

(h) "non-core auto components" mean auto components other than core auto components;

(i)  "no tax or low tax country or territory" means a country or territory in which the maximum rate of income-tax is less than fifteen per cent;

(j)  "operating expense" means the costs incurred in the previous year by the assessee in relation to the international transaction during the course of its normal operations including 6[costs relating to Employee Stock Option Plan or similar stock-based compensation provided for by the associated enterprises of the assessee to the employees of the assessee, reimbursement to associated enterprises of expenses incurred by the associated enterprises on behalf of the assessee, amounts recovered from associated enterprises on account of expenses incurred by the assessee on behalf of those associated enterprises and which relate to normal operations of the assessee and] depreciation and amortisation expenses relating to the assets used by the assessee, but not including the following, namely:—

 (i)  interest expense;

(ii)  provision for unascertained liabilities;

(iii) pre-operating expenses;

(iv) loss arising on account of foreign currency fluctuations;

(v)  extraordinary expenses;

(vi) loss on transfer of assets or investments;

(vii) expense on account of income-tax; and

(viii) other expenses not relating to normal operations of the assessee:

7[Provided that reimbursement to associated enterprises of expenses incurred by the associated enterprises on behalf of the assessee shall be at cost:

Provided further that amounts recovered from associated enterprises on account of expenses incurred by the assessee on behalf of the associated enterprises and which relate to normal operations of the assessee shall be at cost;]

(k)  "operating revenue" means the revenue earned by the assessee in the previous year in relation to the international transaction during the course of its normal operations 8[including costs relating to Employee Stock Option Plan or similar stock-based compensation provided for by the associated enterprises of the assessee to the employees of the assessee] but not including the following, namely:—

 (i)  interest income;

(ii)  income arising on account of foreign currency fluctuations;

(iii) income on transfer of assets or investments;

(iv) refunds relating to income-tax;

(v)  provisions written back;

(vi) extraordinary incomes; and

(vii) other incomes not relating to normal operations of the assessee.

(l)  "operating profit margin" in relation to operating expense means the ratio of operating profit, being the operating revenue in excess of operating expense, to the operating expense expressed in terms of percentage;

9[(la) "relevant previous year" means the previous year relevant to the assessment year in which the option for safe harbour is validly exercised;]

(m) "software development services" means,—

 (i)  business application software and information system development using known methods and existing software tools;

(ii)  support for existing systems;

(iii) converting or translating computer languages;

(iv) adding user functionality to application programmes;

(v)  debugging of systems;

(vi) adaptation of existing software; or

(vii) preparation of user documentation,

but does not include any research and development services whether or not in the nature of contract research and development services.]

Rule-10T, Income-tax Rules

 Rule-10T, Income-tax Rules

Miscellaneous.

10T. (1) Mere filing of an application for an agreement under these rules shall not prevent the operation of Chapter X of the Act for determination of arms' length price under that Chapter till the agreement is entered into.

(2) The negotiation between the competent authority in India and the competent authority in the other country or countries, in case of bilateral or multilateral agreement, shall be carried out in accordance with the provisions of the tax treaty between India and the other country or countries.]

Rule-10S, Income-tax Rules

 Rule-10S, Income-tax Rules

Renewing an agreement.

10S. Request for renewal of an agreement may be made as a new application for agreement, using the same procedure as outlined in these rules except pre-filing consultation as referred to in rule 10H.

Rule-10RB, Income-tax Rules

 Rule-10RB, Income-tax Rules

1[Relief in tax payable under sub-section (1) of section 115JB due to operation of sub-section (2D) of section 115JB.

10RB. (1) For the purposes of sub-section (2D) of section 115JB, the tax payable by the assessee company under sub-section (1) of section 115JB, for the previous year referred to in that section, shall be reduced by the following amount, namely:-

(A-B) - (D-C), where,

A = Tax payable by the assessee company under sub-section (1) of section 115JB on the book profit of the previous year including the past income;

B = Tax payable by the assessee company under sub-section (1) of section 115JB on the book profit of the previous year after reducing the book profit with the past income;

C = Aggregate of tax payable by the assessee company under sub-section (1) of section 115JB on the book profit of those past year or years to which the past income belongs;

D = Aggregate of tax payable by the assessee company under sub-section (1) of section 115JB on the book profit of past year or years, referred to in item C, after increasing the book profit with the relevant past income of such year or years:

Provided that if the value of (A-B)-(D-C) in the formula is negative, its value shall be deemed to be zero.

(2) For the purposes of sub-rule (1) past income shall be the amount of income of past year or years included in the book profit or the previous year on account of an advance pricing agreement entered into by the assessee under section 92CC or on account of secondary adjustment required to be made under section 92CE.

(3) On application of provision of sub-rule (1), the tax credit allowed to the assessee under section 115JAA shall be reduced by the amount which is equal to the amount of reduction that has been allowed under sub-rule (1).

(4) The assessee company shall make a claim for relief under sub-section (2D) of section 115JB in Form No. 3CEEA electronically by uploading signed printout of said Form in the manner specified by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be.

(5) Form No.3CEEA shall be verified by the person who is authorised to verify the return of income of the assessee company under section 140.

(6) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall specify the procedure for filing of the Form No. 3CEEA and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the statements so furnished under this rule.

Explanation 1.- The value of amount "A" in the formula shall be deemed to be zero, if there is no tax payable under sub-section (1) of section 115JB on the book profit of that previous year including the past income

Explanation 2.- The value of amount "B" in the formula shall be deemed to be zero, if there is no tax payable under sub-section (1) of section 115JB on the book profit of that previous year after reducing the book profit with the past income.

Explanation 3.- For the purposes of calculation of amount "C" in the formula, if in any past year or years there is no tax payable under sub-section (1) of section 115JB on the book profit of that year or years, the tax payable for that year or years shall be deemed to be zero.

Explanation 4.- For the purposes of calculation of amount "D" in the formula, if in any past year or years there is no tax payable under sub-section (1) of section 115JB on the book profit of that year or years after increasing the book profit with the relevant past income of such year or years, the tax payable for that year or years shall be deemed to be zero.]

Rule-10RA, Income-tax Rules

 Rule-10RA, Income-tax Rules

[Procedure for giving effect to rollback provision of an Agreement.

10RA. (1) The effect to the rollback provisions of an agreement shall be given in accordance with this rule.

(2) The applicant shall furnish modified return of income referred to in section 92CD in respect of a rollback year to which the agreement applies along with the proof of payment of any additional tax arising as a consequence of and computed in accordance with the rollback provision.

(3) The modified return referred to in sub-rule(2) shall be furnished along with the modified return to be furnished in respect of first of the previous years for which the agreement has been requested for in the application.

(4) If any appeal filed by the applicant is pending before the Commissioner (Appeals), Appellate Tribunal or the High Court for a rollback year, on the issue which is the subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the applicant before furnishing the modified return for the said year.

(5) If any appeal filed by the Assessing Officer or the Principal Commissioner or Commissioner is pending before the Appellate Tribunal or the High Court for a rollback year, on the issue which is subject matter of the rollback provision for that year, the said appeal to the extent of the subject covered under the agreement shall be withdrawn by the Assessing Officer or the Principal Commissioner or the Commissioner, as the case may be, within three months of filing of modified return by the applicant.

(6) The applicant, the Assessing Officer or the Principal Commissioner or the Commissioner, shall inform the Dispute Resolution Panel or the Commissioner (Appeals) or the Appellate Tribunal or the High Court, as the case may be, the fact of an agreement containing rollback provision having been entered into along with a copy of the same as soon as it is practicable to do so.

(7) In case effect cannot be given to the rollback provision of an agreement in accordance with this rule, for any rollback year to which it applies, on account of failure on the part of applicant, the agreement shall be cancelled.]