Alternative Dispute Resolution Mechanism in the Budget

The Indian budget has conveyed the Congressional dimensions of economy drawing both bouquets and brickbats. However it was more of a average budget with a good and much needed emphasis of the rural sectors. Learned Minister Pranab Mukherjee who had mixed his speech with Kautilyas and Aam Admis have also drawn the importance of Alternative Dispute Resolution in the sphere of tax reforms. Transfer Pricing are applicable in inter-state transactions which are generally between parent Companies and their subsidiaries. The provisions in the Income Tax Act (Section 92 ) relating to such transactions are to be at arms-length depending on any of the five methods of Transfer Pricing decided by the Transfer Pricing Officer. Often their arises a conflict in selecting the best method for deciding the Price upon which a commodity shall pass through the parent company to the subsidiary company. This often results in litigations between the assessing officers and taxpayers. The present Finance Act, 2009 envisages an Alternative Dispute Resolution mechanism for settling such issues resulting therein. This is a welcome step from the Government as often it takes years to settle such issues causing loss on the Non-resident companies having a branch here in India. The Transfer Pricing Officer or the Assessing Officer needs to take the guidance of the ADR Commissioners appointed for this purpose. It can also take care of the misuse of Transfer Pricing provisions by such companies provided a safe settlement option is given.