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Tolerance band for Financial Year 2012-13 notified – 3 percent for all cases
other than Wholesale Traders
23 April 2013
Meaning of ‘Wholesale Traders’ shall assume
increasing importance
Background
The Central Government has stipulated on 15 April
2013 vide the following Notification that a tolerance
band of 1 percent for wholesale traders and 3 percent
in all other cases shall be applicable for FY 2012-13,
i.e. Assessment Year 2013-14.
Notification No. 30/2013 [F. NO. 500/185/2011 –
FTD I], dated 15 April 2013
In exercise of the powers conferred by the second
proviso to sub-section (2) of Section 92C of the
Income-tax Act, 1961 (the Act), the Central
Government hereby notifies that where the variation
between the arm's length price determined under
Section 92C of the Act and the price at which the
international transaction or specified domestic
transaction has actually been undertaken does not
exceed one percent of the latter for wholesale traders
and three percent of the latter in all other cases, the price
at which the international transaction or specified
domestic transaction has actually been undertaken shall
be deemed to be the arm's length price for assessment
year 2013-14.
Our comments
In connection with the above, a question may arise as to
the scope of the term ‘wholesale traders’ in the course of
application of the Notification.
The term ‘wholesale’ or ‘wholesale trader’ is not defined
in the Act. Although Rule 10B(2)(d) of the Indian Incometax Rules 1962, makes a reference to wholesale markets
in the context of comparability of international
transactions, no definition is provided. While the basic
concept of ‘wholesale’ trade is widely understood,
questions may arise as to whether sales made to
industrial or business users can be considered to be
made in the course of ‘wholesale trade’.
© 2013 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
In this context, it would be relevant to understand the
general meaning of the term ‘wholesale trader’. The term
‘wholesale trader’ as is generally understood would refer to
persons who sell goods to customers intending to resell
rather than use/consume the goods. Accordingly, where
goods are supplied for the use of industrial or business
users, who do not intend to further resell them, the supply
may not strictly be considered as having been made in the
course of ‘wholesale’ trade.
It is pertinent to note that under other laws / policies such
as the Central Excise Act, 1944 or the Foreign Direct
Investment guidelines, sales to industrial, commercial or
business users would also constitute ‘wholesale trading’.
However, the applicability of these definitions in a tax
context may pose challenges and may not be entirely
appropriate. This is mindful of the fact that these definitions
seek to expand the general meaning of the term ‘wholesale
trade’ as generally understood. While such expanded
definitions would apply in the context of the respective
statutes where they appear, it may be difficult to import this
expanded understanding to tax cases in the absence of
specific statutory provisions.
In the absence of any specific definition in the Act, a
taxpayer may be able to argue that 1 percent variation
provided in the Notification ought to be applicable only to
those taxpayers who sell goods to buyers for the purposes
of resale and not to industrial / commercial users.
However, it is possible that the Tax Authorities may also
seek to closely examine the list of activities set out in the
Memorandum of Association and other statutory filings
made by taxpayers. Also, in the context of determining
whether a specific taxpayer is a ‘wholesale trader’ for the
purposes of the above Notification, the classification per the
NIC Classification Codes and the relevant Transfer Pricing
database (Prowess and Capitaline) may also be relevant.
© 2013 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
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endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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(“KPMG International”), a Swiss entity. All rights reserved.
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© 2013 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.